Legal Advice on Arbitration Laws in Pakistan

Josh and Mak International is a distinguished law firm offering comprehensive legal services in the domain of arbitration law in Pakistan. With a deep understanding of both domestic and international arbitration frameworks, the firm is well-equipped to handle a wide range of arbitration-related matters.

Expertise in Domestic and International Arbitration

Josh and Mak International has a robust team of legal experts specializing in the Arbitration Act of 1940, the New York Convention Act, and the ICSID Convention Act. The firm provides expert guidance on the complexities of these laws, ensuring that clients receive informed advice and representation.

Assistance in Drafting and Reviewing Arbitration Agreements

The firm assists clients in drafting and reviewing arbitration agreements to ensure compliance with Pakistani law and international standards. Their services include crafting clear, enforceable arbitration clauses that address potential disputes, governing laws, and procedural rules. They also provide guidance on the incorporation of arbitration agreements into broader commercial contracts.

Representation in Arbitration Proceedings

Josh and Mak International represents clients in both domestic and international arbitration proceedings. Their expertise includes:

• Initiation of Arbitration: Assisting clients in the commencement of arbitration proceedings, including the preparation and submission of notices and responses.
• Constitution of Arbitral Tribunals: Guiding clients through the process of constituting arbitral tribunals, whether under ad hoc arrangements or institutional rules.
• Conduct of Arbitration: Representing clients throughout the arbitration process, from preliminary hearings to the presentation of evidence and final arguments.

Interim Measures and Court Assistance

The firm is adept at securing interim measures to protect clients’ interests during arbitration. They navigate the complexities of obtaining interim relief from Pakistani courts, including ex parte requests and injunctions to support arbitration proceedings.

Recognition and Enforcement of Arbitral Awards

Josh and Mak International provides comprehensive services for the recognition and enforcement of arbitral awards in Pakistan. Their expertise ensures that domestic awards are filed and enforced under the Arbitration Act, while foreign awards are recognized and enforced under the New York Convention Act. The firm handles all procedural requirements, including the submission of necessary documents and representation in court proceedings.

Handling Challenges and Annulment of Awards

The firm offers expert advice and representation in challenging or seeking the annulment of arbitral awards. Their services cover applications for modification, correction, or setting aside of awards under the relevant provisions of the Arbitration Act. They ensure that clients’ rights are protected and that any grounds for challenging an award are effectively presented.

Advisory on Blockchain and Digital Signatures

In light of emerging technologies, Josh and Mak International provides forward-thinking advice on the use of blockchain and digital signatures in arbitration agreements and awards. While Pakistani law is still evolving in this area, the firm offers insights into the potential acceptance of such technologies based on current legal frameworks and trends.

Continuous Legal Innovation and Education

Josh and Mak International remains at the forefront of legal developments in arbitration by staying abreast of global trends and technological advancements. They regularly update their clients on significant changes and provide educational resources to ensure that businesses are well-prepared for any arbitration-related challenges.

With a commitment to excellence and a client-centric approach, Josh and Mak International stands as a leading provider of arbitration legal services in Pakistan, dedicated to safeguarding their clients’ interests and facilitating effective dispute resolution.

Update (Original Article continues below)

Recently, Pakistan has witnessed numerous legislative reforms promoting the resolution of disputes through alternative dispute resolution (ADR) mechanisms, such as arbitration, mediation, and conciliation.

Sindh has enacted the Code of Civil Procedure (Sindh Amendment) Act, 2018, which introduces certain amendments to the Code of Civil Procedure, 1908 (CPC) as applicable in Sindh. These amendments empower courts in Sindh to mandatorily refer parties to any form of ADR.

Punjab has enacted the Punjab Alternate Dispute Resolution Act, 2019, and the Lahore High Court has made specific amendments to the First Schedule of the CPC as applicable in Punjab. Under this Act, courts are required to refer disputes listed in Schedule 1 to ADR, and they are empowered to refer disputes listed in Schedule 2 to ADR. Notably, the Act provides for the resumption of litigation if ADR fails. Pursuant to the changes in the CPC, courts hearing civil suits must refer the dispute for mediation unless the court determines that the case involves an intricate question of law or fact, or that successful mediation is unlikely. When referring a case for mediation, the court may specify the material issues for determination through mediation. Upon such a referral, court proceedings are stayed for a period not exceeding 30 days, and the parties are directed to the Mediation Centre established by the Lahore High Court.

The Alternate Dispute Resolution Act, 2017, has been enacted for Islamabad, alongside changes to the CPC as applicable in Islamabad. Under this Act, where the court is satisfied that a scheduled dispute can be resolved by ADR and does not involve an intricate question of law, the court may refer the dispute to ADR, requiring the consent of the parties.

Khyber Pakhtunkhwa has enacted the Khyber Pakhtunkhwa Alternate Dispute Resolution Act, 2020, which operates similarly to the Alternate Dispute Resolution Act, 2017, as discussed above.

Balochistan has yet to introduce any legislation empowering courts to refer matters to ADR.

It is worth noting that these legislative reforms are recent, and their practical implementation remains to be seen.

How the 2017 Act Supplements the 1940 Act for Arbitration Disputes in Islamabad Capital Territory, Pakistan

The arbitration landscape in Pakistan underwent significant changes with the introduction of the Alternative Dispute Resolution Act, 2017 (ADR Act 2017). This new legislation aims to enhance and complement the framework established by the Arbitration Act, 1940, specifically within the Islamabad Capital Territory. The following article explores the ways in which the ADR Act 2017 supplements the Arbitration Act 1940.

Background and Objectives

The Arbitration Act, 1940, served as the foundational legislation governing arbitration in Pakistan. It provided the basic legal framework for arbitration agreements, the appointment and authority of arbitrators, and the process for arbitration without court intervention. However, over time, the need for more modern, efficient, and flexible dispute resolution mechanisms became apparent. This led to the enactment of the ADR Act 2017, which was designed to provide an expedited and cost-effective alternative to traditional litigation.

Key Enhancements and Additions

1. Scope and DefinitionsThe ADR Act 2017 broadens the scope of alternative dispute resolution by including not just arbitration, but also mediation, conciliation, and neutral evaluation. This comprehensive approach allows for a wider array of dispute resolution methods, giving parties more flexibility in choosing the most suitable mechanism for their specific needs​​.
2. Panel of NeutralsOne significant addition under the ADR Act 2017 is the establishment of a Panel of Neutrals. This panel includes experienced professionals such as lawyers, retired judges, and civil servants, who can act as arbitrators, mediators, or evaluators. The Act mandates that this panel be notified by the government after consulting the High Court, ensuring that qualified and reputable individuals are selected​​.
3. Referral to ADR Before Legal ProceedingsUnlike the 1940 Act, the ADR Act 2017 emphasizes the importance of attempting ADR before initiating formal legal proceedings. Courts are required to refer civil matters for ADR on the first date after the appearance of all parties, provided that all parties consent and there are no complex legal or factual issues that would preclude ADR​​​​.
4. Formalization of ADR CentersThe ADR Act 2017 provides for the creation of ADR Centers, which are dedicated facilities for conducting ADR processes. These centers are intended to streamline and standardize ADR proceedings, making them more accessible and efficient for disputing parties​​.
5. Time Limits for ADR ProceedingsTo ensure swift resolution of disputes, the ADR Act 2017 sets strict time limits for ADR proceedings. For example, mediators and conciliators are required to dispose of matters within 30 days, while arbitrators have 60 days to render an award. These time frames can be extended only for sufficient cause and with court approval, ensuring that ADR processes do not suffer from unnecessary delays​​.
6. Execution of ADR Awards and SettlementsThe 2017 Act provides clear guidelines for the execution of ADR awards and settlements. Once an award or settlement is reached, it must be submitted to the court, which will then pronounce judgment and pass a decree in terms of the settlement. This provision ensures that ADR outcomes are legally enforceable, giving them the same weight as court judgments​​.
7. Cost and Fee StructureThe ADR Act 2017 includes provisions for the costs and fees associated with ADR processes. These costs are typically borne by the parties in proportions agreed upon by them or determined by the court if no agreement is reached. This clarity helps in managing expectations and avoiding disputes over costs​​.
8. Penal Costs for Non-ComplianceTo ensure compliance and deter frivolous actions, the ADR Act 2017 introduces penal costs for parties who willfully violate any provision of the Act, rules, or court orders. This measure is aimed at promoting good faith participation in ADR processes​​.

Overriding Effect and Integration with Existing Laws

The ADR Act 2017 explicitly states that its provisions will have an overriding effect notwithstanding anything to the contrary in any other law. This ensures that in cases of conflict, the ADR Act takes precedence, thereby promoting its objectives of expeditious and cost-effective dispute resolution​​. Additionally, the Act integrates certain provisions of existing laws like the Oaths Act 1873, Limitation Act 1908, and the Arbitration Act 1940, applying them mutatis mutandis to ADR proceedings. This integration helps maintain legal continuity while updating the framework to modern standards​​​​.

Original Client Information Article:

Law of Arbitration in Pakistan

The legal framework governing arbitration in Pakistan primarily comprises two statutes: the Arbitration Act 1940 and the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011. Despite the Arbitration Act 1940 being a pre-partition legislation that requires modernisation to align with rapidly evolving international standards, it remains a robust and well-established law. It is supported by a consistent body of judicial precedents that aid in its interpretation, especially in the context of trade and commercial disputes.

The Arbitration Act 1940 delineates two main types of arbitration: with and without court intervention. Arbitration without court intervention occurs when both disputing parties agree to arbitration and appoint arbitrators without seeking the court’s assistance. Conversely, arbitration with court intervention happens when one party seeks the court’s help to compel the other party to adhere to a pre-agreed arbitration clause.

The Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011 essentially incorporates the provisions of the New York Convention 1958. This Act ensures that foreign judgments and arbitral awards between nationals of contracting states are enforced in Pakistan, with validity being questioned only on grounds explicitly provided in the Convention.

The Statute

The Arbitration Act 1940 encapsulates the law of arbitration in Pakistan, featuring the following key provisions:

• Arbitration without court intervention (Chapter II, sections 3-19)
• Arbitration where no suit is pending but involves court assistance (Chapter III, section 20)
• Arbitration in suits through court (Chapter IV, sections 21-25)
• Additional provisions common to all types of arbitration (Chapter V, sections 26-38)

This legislative structure under the Arbitration Act 1940 forms the bedrock of arbitration law in Pakistan, providing a comprehensive legal framework for resolving disputes both domestically and internationally.

Law of Arbitration in Pakistan

Arbitration Agreement:

Under the Law of Arbitration in Pakistan, an arbitration agreement is essential regardless of the type of arbitration. As defined in the Arbitration Act 1940, an arbitration agreement is a written agreement to submit present or future disputes to arbitration, irrespective of whether an arbitrator is named in the agreement or not (section 2(2)).

Arbitrators:

The number of arbitrators in an arbitration process under the Law of Arbitration in Pakistan can vary, typically being one, two, three, or more. In cases where an even number of arbitrators is appointed, an umpire is required as per the procedure outlined in the Act (First Schedule). If the arbitration agreement does not specify the number of arbitrators, arbitration shall proceed with a sole arbitrator (First Schedule).

An arbitrator may be named directly in the arbitration agreement or may be appointed by a designated authority (First Schedule). When the arbitration agreement does not stipulate the method of appointing arbitrators and the parties cannot agree on an arbitrator, the Act empowers the court to appoint an arbitrator following the prescribed procedure (sections 8-10).

The court can remove an arbitrator who fails to conduct the proceedings diligently or is found guilty of misconduct after due inquiry (section 11). Furthermore, the death of a party does not terminate arbitration proceedings if the cause of action survives (section 6).

Arbitrators possess certain statutory powers under the Law of Arbitration in Pakistan, including the authority to administer oaths to witnesses and the ability to “state a case” for the court’s opinion.

Court Intervention:

In instances where a party to an arbitration agreement refuses to participate in arbitration, the other party can seek the court’s intervention to compel a reference to arbitration (section 20).

Law of Arbitration in Pakistan

Waiving Rights Under Arbitration Clauses:

Under the Law of Arbitration in Pakistan, an arbitration agreement may become inapplicable if the parties mutually agree to its termination, in line with general contract law principles. Such termination can occur explicitly or implicitly through the conduct of the parties, either partially or wholly. Parties may agree that the arbitration agreement does not apply to a specific dispute or that it ceases to apply entirely. For instance, if a plaintiff and defendant tacitly agree to submit a dispute to an ordinary court of law despite an existing arbitration clause, the arbitration agreement becomes ineffective for that particular dispute due to the parties’ conduct.

Additionally, a party may unilaterally waive its right to rely on the arbitration agreement, even while the other party retains their right under the agreement. This waiver can complicate the waiving party’s position if they later intend to pursue legal action against the other party. Commencing court proceedings on a matter subject to an arbitration agreement typically constitutes a breach and waiver of the right to arbitrate. However, this waiver is revocable until the defendant responds to the court proceedings.

The claimant’s initiation of court proceedings represents a repudiatory breach, requiring the defendant to either accept the repudiation, thus discharging the arbitration agreement, or affirm the agreement and insist on its observance. Without a response from the defendant, the claimant may still initiate arbitration proceedings. However, once the defendant responds, the claimant’s waiver of the right to arbitrate becomes irrevocable if the defendant addresses the substantive claim, thus accepting the repudiation and waiving their own right to arbitrate. Alternatively, the waiver becomes redundant if the defendant successfully applies under section 9 of the Arbitration Act 1996 to stay the court proceedings and refer the matter to arbitration.

Law of Arbitration in Pakistan

Policy:

The Law of Arbitration in Pakistan is significantly influenced by international standards, particularly as seen in Section 34 of the Arbitration Act 1940, which draws from Article 8 of the UNCITRAL Model Law and Article II of the New York Convention 1954. Both these international instruments mandate that courts, when faced with proceedings initiated in breach of an arbitration agreement, must refer the parties to arbitration upon request, unless the court determines that the agreement is “null and void, inoperative, or incapable of being performed” (Article 8, UNCITRAL Model Law; Article II, New York Convention 1954).

Similarly, Section 9(4) of the Arbitration Act 1996 adopts this language, requiring a mandatory stay of court proceedings unless the arbitration agreement is found to be null and void, inoperative, or incapable of being performed. This alignment indicates that English courts, consistent with the Model Law and the New York Convention 1954, place significant importance on upholding arbitration agreements and strive to enforce them wherever possible.

However, under the Arbitration Act of Pakistan, the obligation to order a mandatory stay of court proceedings arises only if the defendant in the court proceedings requests the matter to be referred to arbitration. The defendant retains the option to allow court proceedings to continue, thereby disregarding the arbitration agreement. This flexibility underscores the emphasis on party autonomy within the framework of the Law of Arbitration in Pakistan.

Law of Arbitration in Pakistan

Waiving Right to Arbitrate:

Under the Law of Arbitration in Pakistan, the existence of an arbitration agreement does not preclude either party from initiating judicial proceedings in court. However, when one party initiates court proceedings, it generally constitutes a waiver of their right to have the dispute resolved through arbitration, provided the defendant is agreeable to the court proceedings. Section 34 of the Arbitration Act supports this by stating: “A party to an arbitration agreement against whom legal proceedings are brought (by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may… apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.”

A party’s right to seek a stay of court proceedings is forfeited if they take a step in the proceedings to address the substantive claim. For an action to constitute a step in the proceedings that deprives a party of its right to arbitrate, it must imply acknowledgment of the proceedings’ validity and a willingness to have the dispute resolved by the court instead of through arbitration. For instance, filing a defence is considered conduct that demonstrates an intention to abandon the right to arbitration. Thus, any behaviour indicating a party’s acceptance of judicial resolution over arbitration will be interpreted as a waiver of the right to arbitrate.

Law of Arbitration in Pakistan

Legal Effect of Waiver:

Under the Law of Arbitration in Pakistan, when a party waives its right to resolve a dispute through arbitration by initiating court proceedings, it waives this right for all matters that can be appropriately addressed by the court concerning that specific dispute. For example, if a plaintiff breaches an arbitration agreement by commencing court proceedings and the defendant responds by filing a written statement, the defendant effectively waives their right to arbitration. If the plaintiff subsequently amends the claim to include issues closely related to the initial action, the defendant cannot later insist that these additional issues be referred to arbitration and seek a stay of court proceedings for these issues.

The key question is whether the amendments to the claim are part of the original dispute or are separate matters that would entitle the defendant to apply for a stay under section 34 of the Arbitration Act. The court’s ruling in such cases often determines that the additional issues are connected to the original proceedings. Consequently, if the defendant has already taken steps in the proceedings, they have waived their right to request a stay and insist on arbitration for these related issues. This interpretation reinforces the principle that by engaging in court proceedings, a party waives the right to arbitrate all aspects of the dispute brought before the court.

Law of Arbitration in Pakistan

Is the Waiver Irrevocable?

Under the Law of Arbitration in Pakistan, a waiver of the right to arbitrate becomes irrevocable only if the defendant in the court proceedings accepts the plaintiff’s repudiatory breach of the arbitration agreement by actively participating in the proceedings. The Lahore High Court considered a scenario where a plaintiff applied to stay its own suit and the defendant’s counterclaim in favour of arbitration. The parties had an agreement to arbitrate all disputes. When a dispute arose, the claimant sought an interim injunction to enforce the agreement but filed the application as a part claim rather than as interim measures supporting arbitration, which was refused. Later, the plaintiff served a notice of arbitration, to which the defendant responded by filing a defence and counterclaim in the court proceedings, while also contesting the plaintiff’s right to pursue arbitration.

The plaintiff then applied to stay both its claim and the defendant’s counterclaim. The court granted the stays, noting that although the initial claim form might have breached the arbitration agreement, the defendant had not accepted this breach in a manner that would terminate the arbitration agreement. Had the defendant accepted the plaintiff’s issuance of the claim form, it would have constituted acceptance of the repudiatory breach, and the plaintiff would have lost the right to arbitrate.

The court further held that there was no repudiation of the arbitration agreement, as the defendant’s pre-litigation correspondence did not establish a breach of the agreement. Therefore, the plaintiff’s subsequent initiation of court proceedings was deemed an acceptance of the repudiatory breach, effectively terminating the arbitration agreement.

The Law of Arbitration in Pakistan thus focuses on the application of ordinary contract law principles to identify and handle repudiation of an arbitration agreement. A waiver of the right to arbitrate is irrevocable only if the repudiation is accepted, discharging both parties from further performance of the arbitration agreement. This irrevocability can only be undone by a mutual agreement to arbitrate once again.

Law of Arbitration in Pakistan

Procedure:

The Law of Arbitration in Pakistan, as governed by the Arbitration Act 1940, is significantly lacking in procedural details. While the arbitrator must adhere to the principles of natural justice, failing which the award can be set aside for misconduct under section 30, the Act does not comprehensively address the various stages of the arbitration process.

In practice, arbitration proceedings generally follow a sequence that includes:

• Submission of pleadings (statement of claim and statement of defence)
• Framing of issues (if necessary)
• Presentation of affidavits
• Oral evidence
• Arguments

The Award:

Under the Law of Arbitration in Pakistan, the arbitrator’s award must be delivered within the timeframe specified in the arbitration agreement or, in the absence of such an agreement, within four months from the commencement of the hearing. The court may extend this time limit under certain circumstances as provided in section 28 and the First Schedule. The award must be in writing and signed by the arbitrator. If multiple arbitrators are involved, the majority decision prevails. Notably, the Act does not mandate that the arbitrator provide reasons for the award, leading to what is known as a non-speaking award, which limits the court’s scope for interference.

Court Control Over The Award:

In the framework of the Law of Arbitration in Pakistan, an award cannot be enforced independently; a court judgment is required in terms of the award (section 17). The court’s role includes the following actions:

• Passing judgment in terms of the award (section 17)
• Modifying or correcting the award (section 15)
• Remitting the award, or any part thereof, for reconsideration by the arbitrator or umpire (section 16)
• Setting aside the award (section 30)

Thus, the court has the authority to:

• Completely accept the award
• Completely reject the award
• Modify the award or remit it for further consideration

These procedural nuances underscore the critical role of the court in the arbitration process under the Law of Arbitration in Pakistan.

Law of Arbitration in Pakistan

Modifying the Award:

Under the Law of Arbitration in Pakistan, the court holds the authority to modify or correct an arbitration award in specific circumstances as outlined in section 15 of the Arbitration Act 1940. The court may intervene:

• If part of the award pertains to matters not referred to arbitration, provided it can be separated without affecting the decision on the referred matters.
• If the award is imperfect in form or contains an obvious error that can be corrected without altering the decision.
• If the award contains a clerical mistake or an error arising from an accidental slip or omission.

Remitting the Award:

The Law of Arbitration in Pakistan also allows the court to remit an award or any matter referred to arbitration under section 16 of the Arbitration Act 1940. This occurs when:

• The award leaves certain matters undetermined or addresses matters not referred to arbitration, which cannot be separated from the rest.
• The award is so indefinite that it is incapable of execution.
• There is an apparent objection to the legality of the award on its face.

Setting Aside the Award:

The court can set aside an arbitration award under section 30 of the Arbitration Act 1940 on the following grounds:

• Misconduct by the arbitrator or umpire, or misconduct in the proceedings.
• The award was made after the court issued an order superseding the arbitration.
• The award was improperly procured or is otherwise invalid.

These provisions underscore the significant control exercised by the courts over arbitration awards within the framework of the Law of Arbitration in Pakistan, ensuring that awards are just, lawful, and executable.

Law of Arbitration in Pakistan

Misconduct of the Arbitrator (Setting Aside the Award):

Under the Law of Arbitration in Pakistan, one of the primary grounds for setting aside an arbitration award is misconduct by the arbitrator. Section 30 of the Arbitration Act 1940 articulates this in broad terms, stating that “the arbitrator has misconducted himself or the proceedings.” Given the expansive nature of potential misconduct, it is challenging to provide an exhaustive definition. Misconduct in this context can encompass a wide range of behaviours and circumstances.

Rather than attempting to catalogue all possible instances, it is more practical to classify examples of misconduct into several categories. Misconduct may arise from:

• The arbitrator’s handling of the case
• The arbitrator’s relationships with the parties involved
• The arbitrator’s method of reaching a decision, including the materials relied upon or the tests applied
• The arbitrator’s manner of formulating the award

This classification helps in understanding the varied nature of misconduct under the Law of Arbitration in Pakistan, ensuring that any breach of duty by the arbitrator is appropriately addressed to uphold the integrity of the arbitration process.

Law of Arbitration in Pakistan

Specific Heads of Misconduct:

Under the Law of Arbitration in Pakistan, several specific acts are frequently classified as misconduct by an arbitrator:

• Proceeding ex parte without justification, such as hearing only one party in the absence of the other, failing to give notice of a hearing, or amending issues without informing the parties, thereby causing prejudice. However, amending issues while writing the award is not considered misconduct if it does not prejudice the parties.
• Conducting private inquiries or making decisions based on material not presented in the arbitration record, including importing personal knowledge into the decision, holding private conferences with a party, or conducting private meetings without the other party’s knowledge.
• Delegating duties to others or involving unauthorised individuals in the arbitration process.
• Using incorrect criteria or materials in making the decision.
• Introducing irregularities in the award.

The competent court under the Arbitration Act 1940 is the civil court that would have jurisdiction over a civil suit based on the same cause of action as the arbitration.

Private Inquiries:

An arbitrator must base their decision solely on the evidence presented in the arbitration proceedings. Misconduct occurs if the arbitrator:

• Imports personal knowledge into the decision-making process.
• Holds private conferences with one party or private meetings behind the other party’s back.
• Conducts private inquiries without the parties’ knowledge.
• Listens to confidential information adverse to a party, even if the arbitration agreement grants broad latitude, unless the parties had the opportunity to check and contradict such information.
• Communicates privately with one party without informing the other party.

These specific heads of misconduct underscore the importance of impartiality and transparency in arbitration proceedings under the Law of Arbitration in Pakistan.

Law of Arbitration in Pakistan

Absence of Arbitrators:

Under the Law of Arbitration in Pakistan, when multiple arbitrators are appointed, they must act collectively. An award rendered in the absence of one arbitrator is invalid. However, if any actions taken during an arbitrator’s absence are redone with all arbitrators present, or if the absent arbitrator’s actions were merely administrative, such as reviewing an account book, the award may still be valid.

Joint Deliberations:

All arbitrators are required to deliberate jointly. Any irregularity in this process may be waived by the parties involved. An arbitrator cannot delegate their decision-making functions to another person. If an award is issued by someone to whom the arbitrator has delegated their functions, the award is null unless the delegation was consented to by all parties or involved a purely ministerial act. Similarly, an arbitrator cannot involve a third person in the decision-making process unless all parties consent to such involvement.

Use of Wrong Criterion by Arbitrator:

Even if an arbitrator avoids procedural lapses, using an incorrect criterion for decision-making can lead to the award being set aside. Examples include assessing damages based on black market rates instead of controlled rates or ignoring crucial documents before the evidence is fully presented.

Errors of Law:

When an arbitrator’s decision is challenged on legal grounds, the situation can be complex. The general principles are:

• If a question of law is explicitly referred to the arbitrator, their bona fide ruling on that question is typically not open to challenge, even if erroneous.
• If a question of law is not explicitly referred, an erroneous legal ruling by the arbitrator can void the award if it materially affects the result.

For instance, when interpreting an agreement, an arbitrator’s decision on the legal effect of the agreement is not subject to challenge. However, if an award contains a legal error evident on its face, it can be set aside. Courts will not look into documents not referenced in the award to find such errors. Errors of law generally arise if reasons are provided in the award. Additionally, an award granting illegal relief, such as specific performance of a service contract, is inherently invalid.

Decision to be According to Legal Rights:

Arbitrators must decide based on legal rights, not personal notions of fairness, unless the parties’ intentions suggest otherwise and are judicially upheld. This principle ensures that arbitration under the Law of Arbitration in Pakistan adheres to established legal standards and respects the parties’ legal rights.

Law of Arbitration in Pakistan

Basis of Interference by Court:

Under the Law of Arbitration in Pakistan, the jurisdiction of the court to interfere in arbitration awards on the basis of apparent error requires clarification. Generally, an arbitrator is the final judge of both fact and law. The court’s interference with factual decisions is restricted to cases involving serious procedural lapses, breaches of natural justice, or other forms of misconduct. Regarding legal errors, the court’s jurisdiction, although not explicitly stated in section 30, is implied. If a legal question was not specifically referred to the arbitrator, the court retains the authority to determine such questions to ensure uniformity in legal rulings.

Reasoned and Unreasoned Awards:

When an award is unreasoned, the court cannot interfere on the grounds of error. However, if the arbitrator provides reasons, the court may set aside the award for errors of law. Generally, the court does not challenge the reasonableness of the arbitrator’s reasons.

Interpretation of Contracts:

This principle extends to contract interpretation within an award. The court can only intervene if the award is a speaking one, explicitly detailing the interpretation. Without such detail, the court cannot interfere.

Breach of Natural Justice:

An arbitrator is guilty of misconduct if there is a breach of natural justice. It is well established that an arbitrator cannot rely on personal knowledge or make decisions behind the parties’ backs. However, if the arbitrator decides based on evidence and responses from the parties to queries, the award cannot be considered based on personal knowledge and is thus valid. An award may be set aside if it grants charges for extra work, escalation charges, and damages claimed by a construction contractor without supporting material.

These principles underline the careful balance maintained by the Law of Arbitration in Pakistan between respecting the finality of arbitration awards and ensuring they adhere to legal standards and natural justice.

Law of Arbitration in Pakistan

The Arbitration Act of 1940, which governs domestic arbitration in Pakistan, has notable deficiencies. Under this Act, parties have considerable freedom to adopt their own procedures with minimal oversight. The absence of national arbitral institutions means there are no comprehensive arbitral rules, apart from those formulated by courts within the Act’s framework.

The Arbitration Act 1940 has several flaws:

• It does not grant interim powers to arbitrators.
• It allows extensive judicial intervention at all stages (pre-arbitral, during arbitration, and post-award), undermining the objective of swift and cost-effective dispute resolution.

To address these issues, a new Arbitration Act should be enacted to implement the UNCITRAL Model Law on International Commercial Arbitration in Pakistan. This would enhance the framework for investor-friendly dispute resolution, aligning with the Government of Pakistan’s efforts to attract foreign investment.

Pakistan Enacts a Statute to Implement the ICSID Convention:

Pakistan has taken significant steps to secure foreign investment and boost investor confidence. On April 28, 2011, the Pakistani government enacted the International Investment Disputes Act. This legislation was a response to the Supreme Court of Pakistan’s 2002 decision in the SGS v. Pakistan case, which highlighted the need for implementing the ICSID Convention into national law.

The Supreme Court had ruled that, although Pakistan had ratified the ICSID Convention, the absence of implementing legislation meant domestic courts could not enforce the Convention’s provisions. This resulted in parallel arbitration proceedings in Pakistan and before ICSID, with the Supreme Court refusing to stay the domestic arbitration proceedings despite the ongoing ICSID arbitration.

By enacting the International Investment Disputes Act, Pakistan aims to create a more secure and reliable environment for foreign investors, reflecting a significant advancement in the country’s legal framework for arbitration and investment protection.

Law of Arbitration in Pakistan

Pakistan is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the “Convention”), and has incorporated the Convention into its domestic laws. This development means that foreign arbitral agreements and awards are now enforceable in Pakistan, with rejection only permissible on the grounds specified in the Convention.

According to the Foreign Awards Act, a party to a foreign arbitration agreement facing legal proceedings in Pakistan for a matter covered by the arbitration agreement can apply to the court to stay the proceedings. The court is obliged to refer the parties to arbitration under the foreign arbitration agreement unless it finds that the agreement is null and void, inoperative, or incapable of being performed as per the Convention.

This provision marks a significant change in the Law of Arbitration in Pakistan. Previously, courts had absolute discretion to stay or continue legal proceedings involving foreign arbitration agreements, often citing forum non conveniens as a reason to refuse stays. The new legislation eliminates such domestic impediments, facilitating the enforcement of foreign arbitration agreements.

A landmark judgment by Mr. Justice Ajmal Mian emphasizes this shift. He noted that courts should adopt a dynamic approach and honour foreign arbitration clauses unless compelling reasons suggest otherwise. Justice Mian highlighted the importance of respecting such clauses to maintain Pakistan’s reputation in international trade and commerce. He argued that difficulties such as transporting evidence or witnesses abroad, costs, or the location of the contract’s subject matter in Pakistan are not valid grounds to refuse to stay a suit in favour of foreign arbitration.

In another judgment referencing this note, the court reinforced that a party aware of an arbitration clause’s implications cannot later evade it. The court dismissed arguments against foreign arbitration based on public policy and expenses, noting the feasibility of recording evidence through modern technology and the lack of restrictions on foreign exchange remittance by the State Bank of Pakistan.

Accordingly, the Foreign Awards Act ensures that foreign arbitral awards are recognized and enforced in Pakistan like domestic court judgments or orders. Refusal to recognize and enforce such awards is now limited strictly to the grounds provided in the Convention, reinforcing the robustness of the Law of Arbitration in Pakistan.

Law of Arbitration in Pakistan

In the context of the Law of Arbitration in Pakistan, it is noteworthy that arbitration agreements and awards between Pakistani parties and foreign entities from non-contracting states can still seek recognition and enforcement under the Arbitration Act, treating them as domestic arbitration agreements and awards. An annex to this article provides a list of relevant case law concerning the Foreign Awards Act for the year.

The SGS v. Pakistan case underscored the necessity for national legislation to fully implement the ICSID Convention. The journey to enacting this legislation was fraught with challenges. Initially promulgated by presidential ordinance in November 2006, the legislation lapsed due to the constitutional limit on presidential ordinances, which last only four months unless enacted into a statute. Subsequent ordinances in 2007 and 2009 faced similar fates, complicated by political events such as the state of emergency and judicial interventions. The current Act emerged from a government-sponsored bill introduced in Parliament in 2010.

The purpose of this Act is to implement the International Convention on the Settlement of Investment Disputes between States and Nationals of other States, aiming to bring transparency to the settlement of investment disputes. The Act includes the ICSID Convention as a schedule.

Under the ICSID Convention, awards are protected from review by national courts at the recognition and enforcement stage. Article 54(1) mandates that each contracting state must recognize an award rendered under the Convention as binding and enforce the pecuniary obligations within its territories as if it were a final judgment of a court. Article 54(3) states that execution of the award is governed by the laws concerning the execution of judgments in the state where execution is sought. Article 55 emphasizes that nothing in Article 54 derogates from the laws relating to state immunity from execution.

The Act grants significant discretion to Pakistani courts for the enforcement of ICSID awards. Article 4 provides that an award registered in Pakistan has the same force and effect as a High Court judgment, allowing for execution proceedings. The High Court has control over the execution of the award, akin to its control over its own judgments. High Courts, generally appellate courts in each province, ensure judicial expertise in these matters. The Act stipulates that these principles bind the government, but an award against the government is enforceable only to the extent that a judgment would be enforceable against the government. If the government is not a party to the award, these principles do not apply (Article 5).

Therefore, the Act does not guarantee foolproof execution of ICSID awards in Pakistan. Execution is subject to High Court review, and awards against the government are enforceable only under the same circumstances as judgments. The High Court can attach and sell assets, excluding those related to defense and national security. High Court decisions on execution can be appealed, though appeal grounds are limited.

The Act addresses a significant gap and aims to facilitate easier enforcement of ICSID awards in Pakistan, providing a clear reference for executing such awards. This contrasts with many states where the execution of ICSID awards relies on general civil procedure provisions, leading to potential confusion and unsatisfactory decisions.

Q & A on Arbitration in Pakistan 

Governing Laws and Conventions

1. Q: What is the main law governing arbitration in Pakistan? A: The main law is the Arbitration Act, 1940.
2. Q: Has Pakistan ratified the New York Convention? A: Yes, Pakistan ratified the New York Convention in 2011 by enacting the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011.

Places and Jurisdiction

3. Q: What are the key places for arbitration in Pakistan? A: The key places are Lahore, Karachi, and Islamabad.
4. Q: Is Pakistan a common law jurisdiction? A: Yes, Pakistan operates under a common law jurisdiction.

Confidentiality and Representation

5. Q: Are arbitration proceedings confidential in Pakistan? A: While not expressly prescribed under the Arbitration Act, proceedings are generally accepted to be confidential. However, confidentiality is lost once the award is filed in court for enforcement.
6. Q: Is there a requirement to retain local counsel for arbitration? A: No, there is no such express requirement.

Procedures and Remedies

7. Q: Can party employee witness testimony be presented? A: Yes, there is no restriction on presenting party employee witness testimony.
8. Q: Is it permissible to hold meetings or hearings outside of the seat or remotely? A: Yes, it is allowed if agreed upon by the parties.
9. Q: Is interest available as a remedy in arbitration? A: Yes, Section 27 of the Arbitration Act provides for the payment of interest as part of the decree.
10. Q: Can reasonable costs incurred for the arbitration be claimed? A: Yes, case law confirms that costs are for the arbitral tribunal to decide.

Financial Arrangements

11. Q: Are there any restrictions on contingency fee arrangements or third-party funding? A: Contingency fee arrangements are not permitted. Third-party funding is not per se illegal and is allowed if it doesn’t violate public policy or lead to vexatious litigation.

International Conventions

12. Q: Is Pakistan a party to the ICSID Convention? A: Yes, Pakistan is a party to the ICSID Convention.
13. Q: Are arbitration proceedings in Pakistan compatible with the Delos Rules? A: Yes, they are compatible.

Time Limitations

14. Q: Is there a default time-limitation period for civil actions, including contractual disputes? A: No default time-limitation period exists. Depending on the nature of the claim, the limitation period is generally either 3 or 6 years.

Specialised Courts and Interim Measures

15. Q: Are there specialised courts or judges in Pakistan for handling arbitration-related matters? A: No, arbitration-related matters under the Arbitration Act are generally heard by ordinary civil courts. However, matters under the New York Convention Act are heard by the High Courts and can be appealed to the Supreme Court of Pakistan, provided the Supreme Court grants leave to appeal.
16. Q: Are ex parte pre-arbitration interim measures available in Pakistan? A: Yes, such interim measures are available.

Competence and Jurisdiction

17. Q: What is the courts’ attitude towards the competence-competence principle in Pakistan? A: While there’s no specific legislation, Pakistani courts generally accept that the arbitral tribunal may decide on its own jurisdiction.
18. Q: Can an arbitral tribunal render a ruling on jurisdiction with reasons to follow in a subsequent award? A: There is no specific legislation or judicial ruling on this matter.

Annulment and Enforcement

19. Q: Are there additional grounds for annulment of awards besides those based on the New York Convention? A: Yes, under the Arbitration Act, questions relating to the misconduct of the arbitral proceedings and the legality of the award can also serve as grounds for annulment.
20. Q: Do annulment proceedings typically suspend enforcement proceedings? A: For domestic awards, any objections are typically decided by a Civil Court before enforcement. For foreign awards, a High Court can suspend enforcement proceedings if an application for setting aside or suspension of the award has been made to a competent court in accordance with Article VI of the New York Convention.

Technology and Modernisation

21. Q: Is the validity of blockchain-based evidence recognised in Pakistan? A: This matter has not yet come before the courts in Pakistan.
22. Q: Is an arbitration agreement or award recorded on a blockchain recognised as valid? A: This matter has not yet been addressed by Pakistani courts.
23. Q: Would a blockchain arbitration agreement or award be considered as originals for the purposes of recognition and enforcement? A: Given the pro-arbitration stance of Pakistani courts, they may consider a blockchain arbitration agreement and/or award as originals for the purpose of recognition and enforcement, although there is no specific legislation or ruling on this matter.

Miscellaneous

24. Q: Are there any key points to note in relation to arbitration with and enforcement of awards against public bodies in Pakistan? A: There are no specific cases of enforcement against a state entity, but the principles enshrined in the New York Convention Act and Arbitration Act would apply.
25. Q: Are there any other key points to note about arbitration in Pakistan? A: Recent court judgments have emphasized the “pro-enforcement bias” of the New York Convention for foreign awards, although the same cannot necessarily be said about domestic awards.

Arbitration and the UNCITRAL Model Law

26. Q: Is the arbitration law based on the UNCITRAL Model Law? A: There are two major statutory instruments that govern arbitration in Pakistan: the Arbitration Act, 1940 (the 1940 Act), which applies to local arbitrations, and the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 (the 2011 Act), which applies to foreign arbitrations. Neither of these are based on the UNCITRAL Model Law.

Arbitration Agreements

27. Q: What are the formal requirements for an enforceable arbitration agreement? A: For local arbitrations, a valid arbitration agreement must be in writing, reflecting the intention of parties to refer the dispute to arbitration, with or without a named arbitrator. For foreign arbitration agreements, the 2011 Act refers to the definition in the New York Convention.

Choice of Arbitrator

28. Q: If the arbitration agreement and any relevant rules are silent on the matter, how many arbitrators will be appointed and how will they be appointed? A: If the arbitration agreement is silent on the number of arbitrators to be appointed, the reference shall be presumed to have been intended to be made to a sole arbitrator to be appointed by the consent of both parties. Either party may serve notice to the other party for the appointment of an arbitrator. In case of non-appointment within 15 days of the notice, the party can file an application to the court to appoint an arbitrator.
29. Q: Are there restrictions on the right to challenge the appointment of an arbitrator? A: Where an arbitrator is appointed contrary to the arbitration agreement and the parties participate in the proceedings without objection, subsequent objection to the arbitrator’s jurisdiction is disallowed, except when the appointment contradicts provisions of law.

Arbitrator Options

30. Q: What are the options when choosing an arbitrator or arbitrators? A: No restrictions are imposed on the parties regarding the choice of arbitrators in Pakistani law. The parties are free to agree upon arbitrators of their choice.

Arbitral Procedure

31. Q: Does the domestic law contain substantive requirements for the procedure to be followed? A: The Arbitration Act, 1940, does not provide for any specific procedure to be followed in the course of arbitration proceedings. Parties are relatively free to agree upon any procedure.

Court Intervention

32. Q: On what grounds can the court intervene during an arbitration? A: The court can intervene to appoint arbitrators, remove arbitrators, revoke the authority of an arbitrator, and modify or set aside an award if the arbitrator has misconducted themselves or the proceedings.

Interim Relief

33. Q: Do arbitrators have powers to grant interim relief? A: Unless otherwise restricted by the arbitration agreement, arbitrators have the power to grant interim relief. However, parties often prefer to approach the courts for enforceability.

Award

34. Q: When and in what form must the award be delivered? A: The award must be delivered within the timeframe provided in the arbitration agreement. If no timeframe is provided, the award must be made within four months after entering the reference or within such extended time as the court may allow.

Appeal

35. Q: On what grounds can an award be appealed to the court? A: An award can be set aside on the grounds of arbitrator misconduct, invalidity, or if it was improperly procured.

Enforcement

36. Q: What procedures exist for enforcement of foreign and domestic awards? A: For foreign awards, the 2011 Act provides for filing an application for recognition and enforcement before the relevant High Court. For domestic awards, the arbitral tribunal must notify the parties and, if required, file the award in court for enforcement.

Costs

37. Q: Can a successful party recover its costs? A: Unless otherwise provided in the arbitration agreement, it is implied that the arbitrator has the discretion to award costs of the arbitration, including legal fees.

Types of ADR

38. Q: What types of ADR process are commonly used? Is a particular ADR process popular? A: Arbitration is the most commonly used ADR process in Pakistan. Recent laws encourage mediation and conciliation as well. There are also informal adjudicatory practices derived from custom in some rural areas.

Introduction to Alternative Dispute Resolution (ADR) in Pakistan 

Alternative Dispute Resolution (ADR) has experienced fluctuating fortunes throughout Pakistan’s legal history. Among the various ADR mechanisms in Pakistan, arbitration is the most prevalent. Several factors influence the preference for arbitration over other ADR methods such as mediation or conciliation, with the primary reason being the well-established legal framework governing arbitration in Pakistan. The country’s laws comprehensively address the conduct of arbitration, appointment and powers of arbitrators, the content of arbitral awards, and their enforcement. This legal clarity empowers parties to confidently opt for arbitration when appropriate.

Although mediation and conciliation are recognized under Pakistani law as viable ADR options, the lack of detailed procedural guidelines (pre, during, and post-ADR) hinders their widespread adoption. Negotiation, another ADR mechanism, is notably absent from Pakistani legislation.

Current Legal Framework for Arbitration

Pakistan’s arbitration landscape is shaped by two principal statutes: the Arbitration Act of 1940 (“Arbitration Act”) and the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act of 2011 (“Foreign Awards Act”).

The Arbitration Act, despite its age and need for modernization to align with contemporary international practices, remains a robust and well-defined legal instrument. It is supported by a consistent body of judicial precedents, particularly in trade and commercial disputes. The Act differentiates between arbitration with and without court intervention. Arbitration without court intervention occurs when both parties agree to arbitrate independently of the court. Conversely, arbitration with court intervention is necessary when one party is unwilling to arbitrate, requiring the court to enforce the pre-agreed arbitration terms.

The Foreign Awards Act ratifies the New York Convention of 1958, mandating the enforcement of foreign judgments and arbitral awards between nationals of contracting states, subject only to the specific exceptions outlined in the Convention.

The Arbitration Act

The foundation of arbitration under the Arbitration Act lies in a pre-agreed arbitration agreement, defined as “a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not.” Therefore, a definitive written agreement is required to refer any “present or future” differences to arbitration. Based on the Act and relevant case law, the following criteria must be satisfied before invoking an arbitration clause:

There must be a clear and unequivocal arbitration clause in the agreement between the parties. Legal proceedings must have been initiated by one party against another party to the agreement. The legal proceedings must concern a matter agreed to be referred to arbitration. The party involved in the legal proceedings, who is also a party to the arbitration agreement, has the option to seek a stay of the legal proceedings before filing a written statement or taking any other step. The petitioner must be ready and willing to perform all necessary actions for the proper conduct of the arbitration. The court, if satisfied that there is no sufficient reason why the matter should not be referred to arbitration, may stay the proceedings and direct the dispute to be referred to arbitration.

Since the arbitration agreement is essentially recognized as a special type of contract, all generally applicable international principles of contract law apply. For instance, the person making the arbitration agreement must have the legal capacity to enter into the agreement, and the consideration or object of the agreement must not be illegal.

The Arbitration Act implies certain provisions into the arbitration agreement unless a different intention is expressed. These implied provisions include:

The reference shall be to a sole arbitrator unless otherwise expressly provided. If the reference is to an even number of arbitrators, the arbitrators must appoint an umpire within one month from the latest date of their respective appointments. The arbitrators shall make their award within four months after entering the reference or being called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the court may allow. If the arbitrators’ time expires without making an award or they deliver a notice in writing stating they cannot agree, the umpire shall forthwith enter on the reference in lieu of the arbitrators. The umpire shall make his award within two months of entering on the reference or within such extended time as the court may allow. The parties to the reference shall, subject to law, submit all the evidence and do all other things which the arbitrators or the umpire may require. The award shall be final and binding on the parties and persons claiming under them. The cost of the reference, including legal fees and the award, shall be at the discretion of the arbitrators or the umpire.

The Arbitration Act gives preference to arbitration agreements over general litigation laws when the dispute falls within the scope of the arbitration agreement. The Act provides the court with the discretion to stay a suit filed concerning a dispute covered by an arbitration agreement. It states that if any party to an arbitration agreement or any person claiming under him commences legal proceedings against another party to the agreement or any person claiming under him regarding any matter agreed to be referred to arbitration, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority to stay the proceedings. If the court is satisfied that there is no sufficient reason why the matter should not be referred to arbitration and that the applicant was and remains ready and willing to do all things necessary for the proper conduct of the arbitration, it may make an order staying the proceedings.

Section 34 of the Arbitration Act emphasizes that if a contract includes a provision for resolving disputes through arbitration, and the parties have agreed to such a forum, it should be preferred over filing a suit.

The Arbitration Act serves as a comprehensive code for arbitration matters under Pakistani law, offering significant flexibility for the parties to decide on pertinent issues. Parties are free to choose the applicable procedural rules for the arbitrator, rules for taking evidence, time for furnishing the final award, interim awards, selection of arbitrators, and other flexibilities for conducting arbitration according to their mutual desires. Additionally, there is no legal prohibition against consolidating multiple disputes arising from a single contract and referring them collectively to one arbitral tribunal. However, it is not mandatory for all disputes from a single contract to be referred to the same arbitrators. Parties can decide whether to consolidate disputes into a single reference, make separate references of individual disputes to one arbitrator, or refer different disputes from the same contract to different arbitrators. Where the Arbitration Act is silent, it is generally held that the parties have the option to decide, provided it does not contradict any express provision of Pakistani law.

Interim Relief in Arbitration

Unlike many other jurisdictions, the power to grant interim relief in Pakistan remains with the court, as arbitrators cannot issue interim orders. To obtain interim relief, parties must apply to the relevant court at the initiation of arbitral proceedings, requesting that the interim order remain in effect until the final award is issued. However, arbitrators are empowered to issue interim awards prior to the final arbitral award, providing parties with a means of provisional relief.

Final Arbitral Awards

Once an arbitral award is made, it must be signed by the arbitrator. Upon notification of the award, the parties are bound by it. Arbitrators derive their authority from the original arbitration agreement or terms of reference, which typically outline the scope of their powers. An arbitral award must comply with the tribunal’s terms of reference in both substance and spirit. If it is established that arbitrators have exceeded their authority or the terms of reference, the award loses its legal validity.

Enforcement of Arbitral Awards

To enforce an arbitral award, a party may request the arbitrator to file the award, along with any relevant depositions and documents, with the court. The court then issues notices to the parties, inviting any objections to the award. After considering any objections, the court may remit, modify, correct, or issue a judgment/decree in terms of the award. Once the court issues a decree, it is enforced like any other decree of a Pakistani court.

udicial Precedents and the Arbitration Act

Although the Arbitration Act is largely clear and unambiguous, its application has been further clarified through a consistent chain of judicial precedents. This extensive body of case law has ensured the Act’s continued relevance and adaptability amid rapidly changing times.

There is no legal prohibition against consolidating multiple disputes arising from a single contract and referring them collectively to one arbitrator. This principle is supported by the following extracts from Superior Court judgments:

(a) The fact that multiple disputes have been referred to arbitration under a single contract does not require that the decision on one dispute be dependent on the others. Each dispute can be resolved independently.

(b) Once an award has been made, a party cannot raise additional disputes that should have been raised earlier. However, if an award has not yet been made, the claimant can request that more disputes be referred to arbitration, provided the arbitration process is still ongoing.

With regard to limitations in arbitration matters, Section 37(1) of the Arbitration Act states: “All the provisions of the Limitations Act, 1908 shall apply to arbitral proceedings as they apply to proceedings in the court.”

Furthermore, Section 37(4) of the Arbitration Act provides: (a) If an arbitration agreement stipulates that claims must be referred to arbitration within a specific timeframe and a dispute arises, the court can extend this period if it believes that undue hardship would otherwise be caused, even if the time limit has expired. This provision aims to relieve a party from the hardship imposed by the time limits in the agreement.

(b) While the law of limitations is statutory and cannot be altered by the parties, a contractual clause setting a different limitation period does not invalidate the agreement. Instead, only the clause providing the substituted limitation period will not be enforced. The court is empowered to extend the time limit but cannot eliminate it entirely. This power can be exercised either before or after the time limit has expired.

(c) Whether claims were made within the stipulated time is for the arbitrator to determine. A counterparty cannot refuse to appoint an arbitrator on the grounds that the claims are time-barred. Additionally, the validity of a claim, whether false or fraudulent, is for the arbitrator to decide and cannot be used to reject an application under Section 37(4).

An arbitral award can be set aside by the court only on specific grounds provided in Section 30 of the Arbitration Act: if the arbitrator or umpire has misconducted themselves or the proceedings; if the award was made after a court order superseding the arbitration; if the arbitration agreement became invalid due to the award being rendered or the time for issuance of the award expiring because of pending legal proceedings; or if the award was improperly procured or is otherwise invalid.

The issue of arbitrator misconduct or misconduct of arbitration proceedings is complex and can be grounds for court intervention. A party to arbitration can raise objections during the proceedings or after the award is rendered if they believe the arbitrator has acted improperly. These objections can be addressed by the court with jurisdiction over the matter.

Foreign Awards Act

Pakistan is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“Convention”), and since July 15, 2011, the Convention has been incorporated into domestic law. This means foreign arbitral agreements and awards are enforceable without question, except for grounds of rejection specified in the Convention.

Under the Foreign Awards Act, a party to a foreign arbitration agreement against whom legal proceedings have been initiated regarding a matter covered by the arbitration agreement may notify the other party and apply to the court to stay the proceedings. The court is required to refer the parties to arbitration according to the foreign arbitration agreement unless it determines that the agreement is null and void, inoperative, or incapable of being performed in line with the Convention.

This provision marks a significant legal shift in Pakistan. Previously, courts had absolute discretion to stay or refuse proceedings against a party to a foreign arbitration agreement. Grounds like forum non conveniens, commonly used to refuse stays, are now invalid, removing domestic obstacles to enforcing foreign arbitration agreements. A notable judgment by Justice Ajmal Mian emphasized the importance of upholding foreign arbitration clauses to maintain Pakistan’s international reputation. He noted that objections such as the difficulty of transporting evidence or witnesses abroad, the expense involved, or the location of the contract’s subject matter within Pakistan are insufficient grounds to refuse a stay. The court should only refuse if enforcing the clause would be unconscionable or fundamentally alter the contract.

Another judgment supported this principle, asserting that a party aware of an arbitration clause’s implications cannot later contest it. Furthermore, referencing the Supreme Court’s observations in the Hitachi case, arguments regarding public policy or the expense of arbitration abroad were deemed untenable. The court acknowledged the costs involved in litigation are universal and noted that modern communication technologies, such as teleconferencing, facilitate evidence collection anywhere in the world. Consequently, the court stayed the suit.

Foreign arbitral awards, as per the Foreign Awards Act, are recognized and enforced in the same manner as a judgment or order of a Pakistani court. The recognition and enforcement of these awards cannot be refused except under the conditions outlined in the Convention.

Recognition of Foreign Arbitration Agreements and Awards

Arbitration agreements and awards between Pakistani parties and foreign parties domiciled or incorporated in non-contracting states may still benefit from the Arbitration Act. These agreements and awards can be recognized and enforced as if they were domestic, thus leveraging the same legal framework.

 Promoting Arbitration as an Alternative Dispute Resolution

In the annex to this article, we provide a list of case law from 2014 related to the Foreign Awards Act. While Pakistan has struggled to adopt informal ADR methods like mediation, it has significantly advanced the field of arbitration, establishing it as a viable and effective alternative to litigation. Legislative, judicial, and regulatory bodies consistently support both domestic and international arbitration, thereby bolstering investor confidence in Pakistan’s legal system.

The domestic arbitration process is largely based on recognized common law principles, though the Arbitration Act requires some modernization. Superior court precedents help bridge this gap, providing binding interpretations that adapt to contemporary needs. The international arbitration framework under the Foreign Awards Act aligns with globally accepted practices. Overall, the certainty and clarity of arbitration procedures, unencumbered by the complexities of litigation, are central to Pakistan’s current legal framework governing arbitration.

Advantages and Disadvantages of Arbitration in Pakistan

The principal legislation governing arbitration in Pakistan is the Arbitration Act of 1940 (the ‘1940 Act’). This act strikes a balance between the efficiency, flexibility, and informality of arbitration proceedings, and the authenticity, protection, and support provided by the courts. It is a straightforward piece of legislation that allows parties the freedom to mutually agree upon the modalities of arbitration. However, in the absence of a comprehensive arbitration agreement, the 1940 Act does not offer precise guidance, often leaving gaps that the courts may need to fill.

Advantages:

• The 1940 Act gives parties significant freedom to determine the specifics of their arbitration process.
• Pakistani courts consistently uphold arbitration agreements and typically stay legal proceedings in favor of arbitration, provided the disputes do not involve criminal matters or public policy issues.
• The resolution of disputes relating to private rights through arbitration is actively encouraged by the courts and the legal system.
• The enactment of legislation in 2011 to give effect to the New York Convention and the ICSID Convention demonstrates Pakistan’s commitment to developing its arbitration regime in line with international standards and expectations.

Disadvantages:

• The 1940 Act lacks comprehensive guidance in the absence of detailed arbitration agreements, leading to potential gaps that courts may need to address.
• The flexibility and informality of the arbitration process may be hampered by the necessity for court intervention to fill legislative gaps.
• Parties may face challenges in ensuring that all aspects of their arbitration process are covered adequately by the existing legislation, potentially leading to increased reliance on judicial interpretation and intervention.

Overall, while the 1940 Act provides a robust framework for arbitration, the potential need for judicial intervention in the absence of detailed agreements can be seen as a limitation. Nonetheless, Pakistan’s legal system supports arbitration, and recent legislative developments indicate a strong commitment to aligning with international arbitration standards.

Popularity and Trends in Arbitration

Arbitration is a widely recognized method for settling disputes in Pakistan. The legal framework for commercial arbitration covers:

• Local Arbitrations: Governed by Pakistani law, with arbitration conducted within Pakistan.
• International Arbitrations: Governed by foreign law, with arbitration conducted outside Pakistan but connected to Pakistan.
• Investment Treaty Arbitrations: Arising from bilateral investment treaties signed by Pakistan.

Local arbitrations are primarily regulated by the Arbitration Act of 1940, which outlines the procedures and awards. International arbitrations often follow foreign arbitration laws, and their awards can be enforced in Pakistan under the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act of 2011. This Act incorporates the New York Convention into Pakistani law, facilitating the enforcement of foreign arbitral awards. Previously, foreign awards were enforced under the Arbitration (Protocol and Convention) Act of 1937, which has since been repealed, except for awards made before July 14, 2005, or in non-New York Convention states not recognized by Pakistan.

Investment treaty arbitrations are governed by the ICSID Convention and regulated by the Arbitration (International Investment Disputes) Act of 2011. This Act explicitly states that the provisions of the 1940 Act do not apply to ICSID Convention proceedings.

Unique Jurisdictional Attributes

Pakistan’s courts generally uphold arbitration agreements that specify foreign venues unless they involve criminality (such as violations of mandatory laws, corruption, or fraud) or public policy issues. This judicial stance underscores the importance of legal and regulatory compliance, particularly for international businesses contracting with public entities in Pakistan. Ensuring comprehensive due diligence can prevent the arbitration agreement from being undermined by unforeseen omissions.

Principal Laws and Institutions

The primary statute governing domestic arbitration is the Arbitration Act of 1940, a pre-partition law based on early English arbitration legislation, rather than the UNCITRAL Model Laws. Despite its comprehensive coverage, the 1940 Act often requires supplementation with case law for clarity. According to Section 41(a) of the 1940 Act, the Code of Civil Procedure 1908 (CPC) applies to all court proceedings and appeals under the Act.

International arbitration in Pakistan is governed by the Arbitration Agreement and Foreign Awards Act, which has permanently implemented the New York Convention within the country. Arbitration disputes arising from investment treaties are regulated by the Investment Disputes Arbitration Act, in line with the ICSID Convention.

Principal Institutions and Government Agencies for Arbitration

Domestic arbitration in Pakistan is administered and overseen by the courts. International arbitrations, unless intervened by Pakistani courts on grounds of criminality or public policy, are conducted according to the arbitration regime agreed upon by the parties.

Judicial Oversight and Supervision of the Arbitral Process

Arbitration under the 1940 Act falls under the judicial oversight and supervision of civil courts. According to Section 2(c) of the 1940 Act, a civil court is defined as one having jurisdiction to decide the matter forming the subject of the reference as if it were the subject of a lawsuit. Additionally, Section 40 specifies that Small Cause Courts have no jurisdiction over any arbitration proceedings.

The High Court, along with other superior courts notified by the federal government, has exclusive jurisdiction to adjudicate matters related to the Arbitration Agreement and Foreign Awards Act and the recognition and enforcement of foreign arbitral awards. For awards rendered under the ICSID Convention, the Investment Disputes Arbitration Act designates the High Court as the authority for recognition and enforcement.

Arbitrating in Your Jurisdiction – Key Features

Appointment of an Arbitral Tribunal

Freedom to Choose Arbitrators

The 1940 Act does not impose explicit restrictions on the parties’ right to appoint an arbitrator or umpire of their choice. Parties may name the arbitrator or umpire in their arbitration agreement or outline the procedure for their appointment. If the arbitration agreement does not specify the number of arbitrators, Section 3 and the First Schedule state that the arbitration shall be conducted by a sole arbitrator. In cases with an even number of arbitrators, they are required to appoint an umpire. Section 8 of the 1940 Act allows a court to appoint an arbitrator or umpire if the parties cannot reach a consensus. Notably, an arbitrator does not need to be a member of the local Bar.

Provisions Regulating the Appointment of Arbitrators

The 1940 Act includes provisions for situations where the arbitration agreement does not specify the number and method of appointing arbitrators or umpires, or where the parties cannot agree. For instance, if the arbitration agreement is silent on the number of arbitrators, a sole arbitrator shall be appointed as per Section 3 and the First Schedule. Section 4 of the 1940 Act allows parties to designate a third party in the arbitration agreement to appoint the arbitrator(s). If the parties do not concur on the appointment, Section 8 enables the court to make the appointment, subject to certain conditions. Additionally, Section 20(4) permits the court to appoint an arbitrator when the parties have filed an agreement to refer their dispute to arbitration but cannot agree on an arbitrator.

Alternative Procedures for Appointing an Arbitral Tribunal

In the absence of an agreement between the parties, the 1940 Act empowers the court to appoint the arbitrator or umpire.

Requirements for Impartiality and Independence

The 1940 Act does not explicitly prescribe the qualifications or duties of an arbitrator or umpire. However, it is essential for an arbitrator or umpire to act fairly, independently, and impartially in the spirit of the Act. Courts have ruled that even an employee of a party, once appointed as an arbitrator, must act independently and not rely on prior knowledge acquired as an employee when making an award.

Provisions Governing the Challenge or Removal of Arbitrators

Section 11 of the 1940 Act allows a court to remove an arbitrator or umpire upon a party’s application if the arbitrator fails to proceed with reasonable dispatch in addressing the reference and making an award. Additionally, a court may remove an arbitrator or umpire if their conduct or the conduct of the proceedings results in a miscarriage of justice. Section 5 states that an arbitrator’s or umpire’s authority cannot be revoked without the court’s permission unless the arbitration agreement specifies otherwise.

Role of National Courts in Challenges

National courts play a significant role in considering applications for the removal of arbitrators or umpires under Section 11 of the 1940 Act, based on the specifics of each case. Courts will grant an application for removal if convinced that the arbitrator’s or umpire’s actions or omissions constitute misconduct and result in a miscarriage of justice. Relevant case law includes Abdul Hamid Butt v Government of West Pakistan (1975 PLD Lahore 1427) and Adamjee Insurance Company Limited v RB Industries Limited (1981 CLC [Karachi] 923).

Liability of Arbitrators

The 1940 Act does not explicitly protect arbitrators or umpires from personal liability for wrongful acts committed during their decision-making functions. In cases of misconduct, the typical recourse is to challenge the award or seek the removal of the arbitrator or umpire. Arbitrators are expected to adhere to the principles of natural justice, maintaining impartiality and fairness in their decisions (Muhammad Farooq Shah v Shakirullah (2006) SCMR 1657; Messrs Qamar Din Ahmad & Co v Pakistan (1971) PLD Lahore 38).

Confidentiality of Arbitration Proceedings

Arbitration proceedings seated in Pakistan are not explicitly declared confidential by the 1940 Act. Therefore, it can be inferred that such proceedings are not inherently confidential. According to Section 14(2) of the 1940 Act, arbitrators or umpires are required to file the award (or a signed copy) in court along with any depositions and documents upon the request of any party to the arbitration agreement or if directed by the court. Once filed in court, the award and accompanying documents may become accessible to third parties or the general public.

Confidentiality in Arbitration Proceedings

Since arbitration proceedings under the 1940 Act are not inherently confidential, parties may mutually agree to maintain confidentiality and seek specific court directions to ensure the proceedings remain confidential against third parties or the general public. Additionally, parties may arrange for their representatives and the arbitrator or umpire to sign confidentiality agreements to safeguard the confidentiality of the proceedings.

Use of Documents or Evidence in Other Proceedings

The 1940 Act does not explicitly address whether documents or evidence disclosed in arbitration can be used in other proceedings. The admissibility and use of such documents or evidence would depend on the nature of the subsequent proceedings and the specific characteristics of the documents or information in question.

Loss of Confidentiality

Confidentiality is compromised when the award, along with all depositions and documents produced before the arbitrator or umpire, is filed in court. These filings are necessary for the court to pass a judgment based on the award, which is then followed by a decree.

Role of National Courts and Authorities in Arbitration

Stay or Dismissal of Court Actions in Favor of Arbitration

Under Section 34 of the 1940 Act, courts typically stay court actions in favor of arbitration. This section stipulates that, upon the application of a party to the arbitration agreement (before filing a written statement or taking any other steps in the proceedings), the judicial authority may stay proceedings against that party if it determines there is no sufficient reason to avoid arbitration and the court proceedings concern a matter within the scope of the arbitration agreement. The applicant must be ready and willing to take all necessary steps for the proper conduct of the arbitration to obtain a stay.

Section 32 of the 1940 Act asserts that no suit shall be entertained on any ground for a decision regarding the existence, effect, or validity of an arbitration agreement or award, nor shall any arbitration agreement or award be set aside, amended, modified, or affected in any way except under the provisions of the 1940 Act.

Additionally, Section 4 of the Arbitration Agreement and Foreign Awards Act allows a party to an arbitration agreement, against whom legal proceedings have been initiated concerning a matter covered by the agreement, to apply to the court to stay the proceedings. Upon such an application, the court is required to stay the legal proceedings and direct the parties to proceed with arbitration unless it finds the agreement to be null and void, inoperative, or incapable of being performed.

Grounds for Staying Arbitral Proceedings by National Courts

The general approach of the courts is to uphold valid arbitration agreements and direct parties to resolve their disputes according to the provisions of those agreements. However, a stay under Section 34 of the 1940 Act may be refused if the court finds that enforcing the arbitration clause would be unconscionable or would force a party to honor an agreement different from what was originally contemplated. Additionally, matters involving criminality or public policy cannot be referred to arbitration (Eckhardt and Company, Marine GmbH v Muhammad Hanif (1993) PLD SC 42; The HUB Power Company Limited v Pakistan WAPDA (2000) PLD SC 841).

National Courts’ Approach to Breach of Arbitration Agreements

When a party commences court proceedings in breach of an arbitration agreement governed by the 1940 Act, the courts generally stay the proceedings upon the filing of an application under Section 34 and uphold the arbitration agreement, ensuring that the parties adhere to its terms. Courts generally maintain that if parties have chosen arbitration over a court of law for dispute resolution, neither party should be allowed to avoid that forum. Courts discourage parties from deliberately deviating from a valid arbitration agreement, considering such actions an abuse of the judicial process. Moreover, if a plaintiff sues on an arbitrable claim without initiating arbitration or demanding specific performance of the arbitration agreement, the defendant gains the right to insist on arbitration or not, at their discretion (Societe Generale De Surveillance SA v Pakistan (2002) SCMR 1694; Conticotton SA Co. v Farooq Corporation (1999) CLC [Karachi] 1018)

Presumption of Arbitrability and Court Interference

The National Judicial Policy 2009 outlines the judicial policy for all courts, tribunals, and quasi-judicial institutions in Pakistan. According to Paragraph D(II) (18)(d), courts are encouraged to use Section 89(A) of the CPC, which empowers them, with the parties’ consent, to adopt alternative dispute resolution mechanisms, including arbitration.

As a general rule, courts do not interfere in arbitration proceedings unless a party to the arbitration agreement seeks relief from the court. However, courts have stayed arbitration proceedings in commercial contract disputes involving public entities when allegations of mandatory law infringements have been made, as these matters may involve determinations of criminality or public policy.

Other issues deemed outside the scope of arbitration include minority oppression proceedings under Section 290 of the Companies Ordinance 1984 (Pakistan Water and Power Development Authority v Kot Addu Power Company Limited (2002) MLD [Lahore] 829) and company winding-up proceedings (Orix Leasing Pakistan Limited v Colony Thal Textile Mills Limited (1997) PLD Lahore 443).

Delays in arbitration proceedings can occur due to the filing of applications with the court.

Legal Requirements for Recognizable and Enforceable Arbitral Proceedings

For arbitral proceedings to be valid and enforceable, the following legal requirements must be met:

• A valid arbitration agreement.
• The appointment of an arbitrator or umpire as per the arbitration agreement or the provisions of the 1940 Act.
• Conduct of arbitration proceedings by the arbitrator or umpire in accordance with principles of fairness, natural justice, and the 1940 Act.
• The arbitrator or umpire must issue a reasoned award after considering the evidence presented by the parties.
• Filing of the award in court.

Procedural Flexibility and Control

Mandated Procedures

The 1940 Act outlines the general framework for arbitration proceedings. According to Section 3, unless otherwise specified in the arbitration agreement, the agreement is deemed to include the provisions of the First Schedule of the 1940 Act. The First Schedule generally sets out rules and procedures for arbitration.

Requirements for Place or Seat of Arbitration

The 1940 Act does not explicitly mandate requirements regarding the place or seat of arbitration. Typically, the arbitration agreement specifies the place or seat. If the agreement is silent on this matter, the seat is determined by the curial law governing the arbitration. If both the seat and curial law are unspecified, the proper law of the contract may determine the seat of arbitration, especially when the arbitration clause is part of the main contract (The HUB Power Company Limited v Pakistan WAPDA (2000) PLD SC 841; and Hitachi Limited v Rupali Polyester (1998) SCMR 1618).

Procedural Powers and Obligations of an Arbitral Tribunal

The powers of the arbitrator or umpire are outlined in Section 13 of the 1940 Act, which states that, unless otherwise specified in the arbitration agreement, an arbitrator or umpire has the authority to:

• Administer oaths to the parties and witnesses appearing.
• Refer any question of law to the court for an opinion, or present the award, wholly or partially, as a special case for the court’s opinion.
• Make the award conditional or in the alternative.
• Correct any clerical mistakes or errors in the award resulting from accidental slips or omissions.
• Administer necessary interrogatories to any party involved in the arbitration.

Additionally, Section 27 of the 1940 Act empowers the arbitrator or umpire to make an interim award.

The obligations of the arbitrator or umpire include conducting the arbitration proceedings honestly, fairly, and in accordance with the principles of natural justice. They must give sufficient notice to the parties, examine and record evidence, and state the reasons for the award in sufficient detail to enable the court to consider any question of law arising from the award (Section 26(A) of the 1940 Act).

Evidence

General Approach to Gathering and Tendering Written Evidence

There is no fixed approach to gathering and tendering written evidence at the pleading or hearing stages of arbitration proceedings. Under the 1940 Act, arbitration proceedings are treated as proceedings before a domestic tribunal. Consequently, the arbitrator or umpire is not strictly bound by procedural law but must ensure that natural justice and procedural fairness are observed. Paragraph 6 of the First Schedule of the 1940 Act stipulates that, subject to any prevailing laws, parties to the arbitration and all persons claiming under them must produce before the arbitrator or umpire all relevant books, deeds, papers, accounts, writings, and documents within their possession or power as required or requested.

Agreement on Rules for Disclosure

Paragraph 6 of the First Schedule of the 1940 Act outlines the powers of the arbitrator or umpire regarding disclosure. This paragraph is implied in an arbitration agreement unless expressly excluded by the agreement (Section 3 of the 1940 Act). Thus, parties can agree on rules concerning the disclosure of evidence or information.

The primary difference between disclosure in arbitration and litigation is that an arbitrator or umpire is not bound by strict procedural law. In contrast, civil litigation in Pakistan is governed by the CPC, which contains detailed provisions on the disclosure of documents. For example, Order VII of the CPC outlines how documents may be relied upon in a plaint, Order XI prescribes rules for inspecting documents in the possession of the other party, and Order XIII details the rules for the production, impounding, and return of documents.

Rules on Oral Evidence and Cross-Examination

Paragraph 6 of the First Schedule of the 1940 Act stipulates that parties to the arbitration and all persons claiming under them must, subject to any prevailing laws, submit to examination by the arbitrator or umpire on oath or affirmation regarding the matters in dispute. Additionally, Sections 13(a) and 13(e) of the 1940 Act empower the arbitrator or umpire to administer oaths to the parties and witnesses and to issue interrogatories as needed.

Beyond these provisions, the 1940 Act does not prescribe specific procedures for oral testimony or the examination of parties. However, while the arbitrator or umpire is not required to strictly adhere to procedural law technicalities, they must ensure compliance with the principles of natural justice and procedural fairness. Cross-examination is less commonly used in arbitration proceedings compared to court litigation.

Compulsion Powers for Arbitrators

In the absence of an express agreement between the parties, an arbitrator or umpire may request the attendance of a witness and/or the production of evidence as outlined in Paragraph 6 of the First Schedule of the 1940 Act. Under Section 43(1) of the 1940 Act, the court may issue processes to parties and witnesses whom the arbitrator or umpire wishes to examine. According to Section 43(2), individuals who:

(a) fail to attend pursuant to a court-issued process, (b) make any other default, (c) refuse to give evidence, or (d) commit any contempt towards the arbitrator or umpire during the investigation,

are subject to the same disadvantages, penalties, and punishments as they would incur for similar offenses in suits tried before the court, upon the arbitrator’s or umpire’s representation.

The 1940 Act applies only to domestic arbitration. For international arbitration, the powers of compulsion of the arbitrator or umpire and the authority to issue orders against non-parties depend on the law governing the arbitration proceedings.

Special Provisions for Arbitrators in International Treaties

The 1940 Act does not contain special provisions for the appointment of arbitrators pursuant to international treaties, including bilateral or multilateral investment treaties.

Qualification Requirements for Representatives

The 1940 Act does not prescribe specific qualifications or conditions for representatives appearing on behalf of parties in arbitration proceedings.

The Award

Determination in the Absence of a Party

There is no explicit provision in the 1940 Act regarding last-minute requests for adjournment or ex parte proceedings. However, courts have held that if a notice of hearing issued by the arbitrator or umpire includes a peremptory direction with a threat of proceeding ex parte in case of default and is duly served, the arbitrator or umpire is justified in proceeding ex parte if the party fails to appear (Paracha Textile Mills Limited, Karachi v Nanikram Shamandas (1977) PLD Karachi 37).

Limits on Arbitrators’ Powers

Unless otherwise specified in the arbitration agreement, Section 13 of the 1940 Act empowers the arbitrator or umpire to make the award conditional or correct any clerical mistakes or errors. The arbitration agreement or the terms of reference defined by the court can outline the scope of the arbitrator’s or umpire’s powers. Before an award can be enforced under the 1940 Act, it must be filed in court as per Section 14. The court has the exclusive jurisdiction to modify or remit the award under Sections 15 and 16, respectively. Therefore, any remedy fashioned by an arbitrator or umpire in the award must be accepted by the court before it can become a rule of the court.

Form and Legal Requirements for an Award

Section 14 of the 1940 Act stipulates that an arbitrator or umpire must sign the award and notify the parties in writing of the making and signing of the award, including the amount of fees and charges payable for the arbitration and award. The award, or a signed copy, along with any depositions and documents, must be filed with the court.

Section 26A of the 1940 Act requires that the reasons for the award be provided in sufficient detail to enable the court to consider any legal questions that may arise. Paragraph 3 of the First Schedule mandates that an award be given in writing within four months of the arbitrator or umpire entering on the reference or being called upon to act by written notice, unless the arbitration agreement specifies otherwise. The arbitrator or umpire may request an extension of time from the court under Section 28 of the 1940 Act.

The Supreme Court has ruled that an award is incomplete if it does not address the matter for which arbitration was sought or if it is made without considering all relevant evidence (Abdul Basit v Muhammad Idrees (1984) SCMR 337; Messrs Waheed Brothers (Pakistan) Limited v Messrs Izhar (Pvt.) Limited (2002) SCMR 366).

Section 3 of the Stamp Act 1899 specifies the stamp duty payable on an award delivered by the arbitrator or umpire. An award made without court intervention must be registered (Mst. Farida Malik v Dr Khalida Malik (1998) SCMR 816). Under Section 17 of the 1940 Act, a court can set aside an award, without the filing of any objection, if it finds the award to be patently illegal and thus a nullity in law.

Costs and Recovery in Arbitration

Order for Costs by Arbitral Tribunal

The 1940 Act does not explicitly allow an arbitral tribunal to order the unsuccessful party to pay the costs of the dispute. However, the arbitrator or umpire may include the costs of arbitration in the award if authorized by the arbitration agreement or the terms of reference framed by the court. Section 38(3) of the 1940 Act allows the court to make an order regarding the costs of arbitration when the award does not sufficiently address this matter. If the parties have agreed to equally bear the costs of arbitration, the arbitrator or umpire may not award costs to one party alone (Syed Altaf Hussain v Pakistan Steel Mills Corporation (1985) CLC [Karachi] 914).

Matters Included in Arbitration Costs

The costs of arbitration typically include the fees of the arbitrator(s). However, the costs do not generally cover external counsel fees because parties are not obligated to engage a lawyer. If a party chooses to hire external counsel for its convenience or assistance, the other party should not be responsible for these costs (Messers Ibrahim Fibres Limited v Hameed Masood (Private) Limited (2006) YLR [Lahore] 1523).

Limitations on Recovery of Costs

Arbitrators or umpires may refuse to file an award in court if their fees have not been paid, and a court cannot compel them to do so. However, under Section 38 of the 1940 Act, unless the arbitrator or umpire has pre-fixed their fees through a written agreement, a party can compel the arbitrator or umpire to file the award in court by paying the demanded fees into the court. The court then determines and fixes the fees to be accepted by the arbitrator or umpire.

Rules Relating to Taxes for Arbitrators

The 1940 Act does not require foreign or domestic arbitrators to pay taxes, except for a nominal stamp duty on the award as per Section 3 of the 1899 Act.

Arbitration Agreements and Jurisdiction

Form and Content Requirements for Enforceable Arbitration Agreements

Section 2(a) of the 1940 Act defines an arbitration agreement as a written agreement to submit present or future differences to arbitration, whether or not an arbitrator is named. Courts generally view documents expressing the parties’ intention to resort to arbitration as sufficient to constitute an arbitration agreement. A written arbitration agreement does not necessarily need to be signed by the parties, provided its terms and conditions are clear and mutually agreed upon (Mst. Shamim Akhtar v Najma Baqai (1977) SCMR 409; Messrs Tribal Friends Co. v Province of Balochistan (2002) SCMR 1903).

An arbitration agreement should ideally specify the law governing the arbitration agreement, the curial or procedural law of the arbitration, and the proper law of the main contract. In the absence of an explicit choice, the proper law of the main contract is generally treated as the law governing the arbitration agreement if the arbitration clause is part of the main contract. Pakistani courts recognize the parties’ choice of jurisdiction for procedural matters in international arbitration agreements, even if implied by the selection of the arbitration venue.

If the main contract is governed by Pakistani law and no other law is explicitly chosen to govern the arbitration agreement, the 1940 Act applies. Therefore, it is advisable to clearly state in the arbitration agreement which law governs the arbitration proceedings and where they are to be seated.

Validity of an Arbitral Clause in an Invalid Contract

The 1940 Act does not explicitly address the severance of an arbitration clause from an otherwise invalid agreement. However, courts have permitted arbitrators or umpires to determine the validity of a contract if the arbitration agreement expressly grants them this authority (Port Qasim Authority v Al Ghurair Group of Companies (1997) PLD Karachi 636).

Arbitral Tribunal’s Jurisdiction (‘Competence-Competence’)

Typically, arbitrators or umpires do not have the authority to rule on their own jurisdiction; this is usually determined by the courts. However, an arbitrator’s power to adjudicate their jurisdiction has been recognized when granted by statute (Muhammad Aslam Siddiqui v Hasina Begum (1986) MLD [Karachi] 735). It is arguable that parties can also agree to grant an arbitrator or umpire the power to rule on jurisdictional questions.

Mandated or Prohibited Arbitration for Certain Disputes

The 1940 Act does not mandate arbitration for any specific types of disputes. However, the Supreme Court has ruled that the 1940 Act applies only to civil matters (Ali Muhammad v Bashir Ahmad through legal heirs (1991) SCMR 1928). In The HUB Power Company Limited v Pakistan WAPDA (2000) PLD SC 841, the court held that issues requiring findings of alleged criminality or involving public policy are not referable to arbitration. Other matters excluded from arbitration include minority oppression proceedings under Section 290 of the Companies Ordinance 1984 (Pakistan Water and Power Development Authority v Kot Addu Power Company Limited (2002) MLD [Lahore] 829) and company winding-up proceedings (Orix Leasing Pakistan Limited v Colony Thal Textile Mills Limited (1997) PLD Lahore 443).

Limitation Periods for Commencing Arbitration Proceedings

Section 37(1) of the 1940 Act states that all provisions of the Limitation Act 1908 apply to arbitration as they do to court proceedings. Article 181 of the 1908 Act sets the limitation period for arbitration proceedings at three years from the date the right accrues. Section 37(3) further clarifies that for the purposes of Section 37 and the 1908 Act, arbitration is considered commenced when one party to the arbitration agreement serves a notice to the other parties requiring the appointment of an arbitrator, or when the arbitration agreement specifies that the dispute should be referred to a named or designated person, and a notice is served requiring that the difference be submitted to the named or designated parties.

Jurisdiction Over Non-Parties to the Arbitration Agreement

National law does not enable an arbitral tribunal to assume jurisdiction over persons who are not party to the arbitration agreement. Paragraphs 6 and 7 of the First Schedule of the 1940 Act indicate that an arbitrator’s or umpire’s jurisdiction extends only to the parties involved and those claiming under them. Consequently, an arbitrator or umpire cannot assume jurisdiction over third parties who are not bound by the award (Awan Industries Limited v The Executive Engineer (1992) SCMR 65).

Applicable Law

Determining Substantive Law

Courts typically respect the parties’ choice of substantive law. In the absence of an explicit choice, courts either apply Pakistani law or determine the applicable law according to principles of international private law (MA Chowdhury v Messrs Mitsui OSK Lines Limited (1970) PLD SC 373; Light Industries (Pvt.) Limited, through Chief Executive v Messrs ZSK STICKMASCHINEN GmbH through Attorney (2009) CLD [Karachi] 1340; CGM (Compagnie General Maritime) v Hussain Akbar (2002) CLD [Karachi] 1528; and Masood Asif v United Bank Limited (2001) CLC [Karachi] 479).

Mandatory Laws

The law governing arbitration proceedings is generally the law of the arbitration agreement, as agreed upon by the parties. Courts have ruled that when the main contract is governed by Pakistani law but arbitration occurs outside Pakistan, the procedural and substantive law of the seat of arbitration governs the arbitration proceedings, and Pakistani courts do not exercise jurisdiction in such matters (Hitachi Limited v Rupali Polyester (1998) SCMR 1618).

Seeking Interim Measures in Support of Arbitration Claims

Arbitral Tribunal’s Power to Order Interim Relief

An arbitrator or umpire cannot grant interim relief. Under Section 27 of the 1940 Act, an arbitrator or umpire can make an interim award, but this interim award is subject to the court’s discretion for final enforcement.

Recognition and Limitation of Tribunal’s Power to Grant Interim Relief

Under the 1940 Act, only the court has the authority to grant interim relief.

Court-Granted Interim Relief in Support of Arbitration Proceedings

The court has the power to grant interim relief under Section 41, read together with the Second Schedule of the 1940 Act. The Second Schedule lists circumstances where the court may grant interim relief, including:

• Interim custody or sale of goods that are the subject of the reference.
• Securing the amount in dispute.
• Detention, preservation, or inspection of property or items involved in the reference.
• Interim injunctions or appointment of a receiver.
• Appointment of a guardian for a minor or person of unsound mind for arbitration proceedings.

Section 18 of the 1940 Act empowers the court to issue interim orders it deems necessary any time after filing the award, particularly if a party is found to be taking steps to defeat, delay, or obstruct the execution of any decree that may be passed upon the award or if prompt execution of the award is just and necessary.

Interim Relief for Arbitration Proceedings Seated Elsewhere

Courts have held that when the main contract is governed by Pakistani law, but arbitration occurs outside Pakistan, the procedural and substantive law of the seat of arbitration governs the proceedings. Pakistani courts would not exercise jurisdiction in such matters (Hitachi Limited v Rupali Polyester (1998) SCMR 1618).

Challenging Arbitration Awards

Appeal, Challenge, or Setting Aside an Award

Under Section 33 of the 1940 Act, any party to an arbitration agreement or any person claiming under them may apply to the court to challenge the existence or validity of an arbitration agreement or an award. The court will then decide the matter based on affidavits but may also hear other evidence and order discovery if deemed just and expedient.

Section 30 of the 1940 Act allows the court to set aside an award on grounds of misconduct by the arbitrator or umpire, or if the award has been improperly procured or is otherwise invalid. According to Section 17 of the 1940 Act, before making the award an order of the court and issuing a decree for its execution, the court must be satisfied that there is no reason to remit the award or any of the matters referred to arbitration for reconsideration, or to set aside the award. Courts have relied on this provision to take suo moto notice, even if the award has not been challenged before them (Messers Awan Industries Limited v The Executive Engineer (1992) SCMR 65; Ascon Engineers (Pvt.) Ltd. v Province of Punjab (2002) SCMR 1662).

A court hearing an objection to the award may not reappraise the evidence recorded by the arbitrator to find errors or infirmities in the award. Any error or infirmity that may render the award invalid must appear on the face of the award and be discoverable by reading the award itself (M/s. Joint Venture KG/RIST through DP Geisler GM Bongard Strasse v Federation of Pakistan (1996) PLD SC 108).

Under the Arbitration Agreement and Foreign Awards Act, the recognition and enforcement of a foreign arbitral award may only be refused in accordance with Article V of the New York Convention.

Exclusion of Rights of Appeal or Challenge

The right to challenge an award is provided by the legislature under the 1940 Act. Parties cannot exclude this right through a private contract when opting for arbitration. Moreover, the Supreme Court of Pakistan in Ascon Engineers (Pvt.) Limited v Province of Punjab (2002) SCMR 1662 held that the court has suo moto powers to remit or set aside an award if it finds the award unfit to be maintained.

Modification, Clarification, or Correction of an Award

Section 15 of the 1940 Act allows the court to modify or correct an award in the following circumstances: (a) If part of the award addresses a matter not referred to arbitration and can be separated from the other part without affecting the decision on the referred matter. (b) If the award is imperfect in form or contains an obvious error that can be amended without affecting the decision. (c) If the award contains a clerical mistake or an error arising from an accidental slip or omission.

Unless otherwise specified in the arbitration agreement, Section 13(d) of the 1940 Act empowers the arbitrator or umpire to correct any clerical mistake or error arising from an accidental slip or omission in the award. Additionally, under Section 16(1)(b) of the 1940 Act, the court can remit an award or any matter referred to arbitration back to the arbitrator or umpire for reconsideration, particularly if the award is so indefinite as to be incapable of execution.

Enforcement

Ratification of Conventions

Pakistan has incorporated the New York Convention into its municipal law through the Arbitration Agreement and Foreign Awards Act. Additionally, the ICSID Convention has been integrated into Pakistani law by the International Investment Disputes Act.

Procedures and Standards for Enforcing an Award

Under Section 14 of the 1940 Act, if the validity of an award is not challenged, or if any challenge is unsuccessful, and the court does not find grounds to modify, remit, or set aside the award, the court may, under Section 17, pronounce judgment according to the award and issue a decree. This decree can be executed under the CPC as if it were a decree issued in a lawsuit.

The time frame for executing a decree can vary from a few months to several years, depending on the subject matter of the award. The costs associated with executing such a decree also depend on the award’s subject matter and scope.

Enforcement Rules for Domestic and Non-Domestic Awards

Domestic awards may be enforced under the 1940 Act. Foreign awards that fall within the scope of the New York Convention are enforced under the Arbitration Agreement and Foreign Awards Act. According to Section 6 of this Act, unless the court refuses to recognize and enforce an award based on Article V of the New York Convention, the court must recognize and enforce the award in the same manner as a judgment or order of a Pakistani court.

A foreign arbitral award enforceable under the Arbitration Agreement and Foreign Awards Act is binding on the parties involved and can be relied upon by any of those parties for defense, set-off, or other purposes in any legal proceedings in Pakistan.

Section 5 of the Arbitration Agreement and Foreign Awards Act requires the party seeking enforcement to provide the court with the duly authenticated foreign award or a certified copy, along with the original arbitration agreement or a certified copy. If the award or agreement is not in Urdu or English, a certified translation in one of these languages must also be supplied, as specified by Article IV of the New York Convention.

Awards made under the ICSID Convention are enforced through the International Investment Disputes Act. The party seeking enforcement must register the award in court, providing proof of any prescribed matters and complying with other provisions of the Act. Once registered, the award’s pecuniary obligations have the same force and effect as if it were a court judgment rendered at the time the award was made, with the date of registration under the Act (Section 4).

Case Review

Pre-arbitration procedural requirements come into effect before the commencement of arbitration proceedings when parties have agreed on a multi-tiered dispute resolution mechanism, a common practice in construction and engineering contracts. The Islamabad High Court (IHC) in Pakistan addressed the nature and consequences of non-compliance with these requirements in its recent judgment, Pak. U.K. Association (Pvt.) Ltd. v. Hashemite Kingdom of Jordan [2017 CLC 599].

A contract (the “Contract”) was executed between Pak. U.K. Association (Pvt.) Ltd. (the “Applicant”) and the Hashemite Kingdom of Jordan for certain works at the Jordanian Embassy and the Jordanian Ambassador’s residence in the Diplomatic Enclave, Islamabad. The Hashemite Kingdom of Jordan appointed an Engineer to oversee the works.

Clause 67.1 of the Contract stipulated that any dispute arising in connection with or out of the Contract was to be referred first to the Engineer for a decision. If either party was dissatisfied with the Engineer’s decision, or if the Engineer failed to give a decision within a certain timeframe, Clause 67.3 allowed either party to refer the dispute to arbitration under Pakistan’s Arbitration Act, 1940 (the “Arbitration Act”).

Section 20 of the Arbitration Act allows the court to compel arbitration if a party to an arbitration agreement refuses to initiate arbitration proceedings. The Applicant filed an application under Section 20 with the IHC, seeking to initiate arbitration without first referring the dispute to the Engineer, arguing a suspicion of bias against the Engineer.

The IHC held that conditions precedent to an arbitration clause must be fulfilled before invoking the arbitration clause. It noted that in construction or engineering contracts with multi-tiered dispute resolution processes, an aggrieved party’s right to refer disputes to arbitration is contingent upon first referring the disputes to the agreed-upon mechanism.

The IHC relied on principles of contract law in common law jurisdictions, asserting that a court cannot rewrite an agreement or exempt a party from contractual obligations. The court concluded that the requirement to refer a dispute to the Engineer could only be dispensed with if the Engineer had resigned, been disengaged by the employer, or refused to entertain the dispute.

Regarding bias, the IHC stated that a pre-condition to arbitration cannot be waived on the grounds of bias unless it is shown that substantial miscarriage of justice would occur. Thus, a party cannot avoid an agreed forum simply due to potential adverse decisions.

The IHC ultimately dismissed the application under Section 20 as premature, emphasizing the mandatory compliance with pre-arbitration procedural requirements. This principle has been upheld in previous Pakistani court decisions, such as in Board of Intermediate and Secondary Education, Multan v. Fine Star & Company, Engineers and Contractors [1993 SCMR 530], Hanover Contractors v. Pakistan Defence Officers Housing Authority [2002 CLC 1880], and WAPDA v. S.H. Haq Noor and Company [2008 MLD 1606].

The IHC’s decision aligns with precedents from other common law jurisdictions, such as the English High Court in Emirates Trading Agency LLC v. Prime Mineral Exports Private Ltd [2014 EWHC 2104 (Comm)], the Singapore Court of Appeal in International Research Corp PLC v. Lufthansa Systems Asia Pacific Pte Ltd [2013 SGCA 55], and the New South Wales Court of Appeal in United Group Rail Services Limited v. Rail Corporation New South Wales [2009 NSWCA 177].

The IHC decision impacts the admissibility of arbitration proceedings seated in Pakistan and the enforceability of arbitral awards in Pakistan. Non-compliance with pre-arbitration procedural requirements renders the initiation of arbitration inadmissible, and any arbitral tribunal must decline jurisdiction. An arbitral award made without jurisdiction could be set aside by Pakistani courts.

Additionally, if a pre-arbitration procedural requirement is a condition precedent, any award based on such an arbitration agreement would be unenforceable.

However, the IHC’s decision leaves some issues unresolved:

1. Whether a pre-arbitration procedural requirement can be fulfilled after arbitration has commenced, thus retroactively rectifying non-compliance.
2. Whether a new arbitration proceeding can be initiated for the same dispute after an application under Section 20 is dismissed as premature.

While the answers depend on the specific facts of each case, it may be procedurally efficient to retrospectively fulfill a pre-arbitration requirement. It is also possible to initiate a new arbitration proceeding after a Section 20 application is dismissed, as such a dismissal does not invalidate the arbitration agreement or constitute a decision on the merits of the claim for the purposes of res judicata and issue estoppel.

Legal Framework of the Jurisdiction

Is the arbitration law based on the UNCITRAL Model Law? 1985 or 2006 version? If yes, what key modifications if any have been made to it?

The Arbitration Act in Pakistan is not based on the UNCITRAL Model Law. It is a colonial-era law that provides for arbitration through three mechanisms:

• Arbitration without court intervention (Chapter II, Sections 3-19).
• Arbitration with court intervention where there is no pending suit (Chapter III, Section 20).
• Arbitration in suits pending before the court (Chapter IV, Sections 21-25).

The Arbitration Act is the primary legislation governing domestic arbitral proceedings, including the interpretation of arbitration agreements, appointment and removal of arbitrators, powers of the courts in relation to arbitration proceedings, and setting aside and enforcement of arbitral awards. It does not apply to foreign arbitral awards, as established in Orient Power Co. (Pvt) Ltd v Sui Northern Gas Pipelines Ltd PLD (2019) Lahore 607.

The recognition and enforcement of foreign arbitral awards in Pakistan are governed by the New York Convention Act, which applies different enforcement procedures. The Arbitration Act empowers civil courts (courts of general first-instance jurisdiction) to recognize and enforce arbitral awards. In contrast, Section 3 of the New York Convention Act grants exclusive jurisdiction to the High Courts to adjudicate and settle matters arising from the New York Convention Act. Furthermore, Section 7 of the New York Convention Act limits the grounds for refusing recognition and enforcement of a foreign award, stating that “the recognition and enforcement of a foreign arbitral award shall not be refused except in accordance with Article V of the Convention.”

The ICSID Convention has also been implemented in Pakistan through the Arbitration (International Investment Disputes) Act, 2011 (the “ICSID Convention Act”).

When was the arbitration law last revised?

The arbitration law in Pakistan was last revised in 2011, with the incorporation of the New York Convention into Pakistani law through the enactment of the New York Convention Act, which addresses the enforcement and recognition of foreign arbitral awards. Prior to that, the Arbitration Act was amended in 1981 to require arbitrators or umpires to provide adequate reasoning in their awards to enable the competent court to consider any questions of law arising from the award (Section 26-A of the Arbitration Act).

Determining the Law Governing the Arbitration Agreement

Pakistani courts employ varied approaches to determine the law governing the arbitration agreement. In Abid Associated Agencies v Areva (2015 MLD 1646), the court endorsed the three-stage inquiry from the English case Sulamerica v Enesa [2012] EWCA Civ 638. According to this test, courts must first determine if the parties expressly chose the law of the arbitration agreement; second, if an implied choice by the parties exists; and lastly, in the absence of express or implied choice, identify the system of law with the closest and most real connection to the arbitration agreement.

Additionally, courts have held that if there is no express agreement on the law governing the arbitration agreement, the law governing the main agreement will also govern the arbitration agreement if the arbitration clause is part of the main agreement (Hitachi Limited v Rupali Polyester 1998 SCMR 1618). If the parties have a standalone arbitration agreement, courts are likely to follow the three-step inquiry from Abid Associated Agencies v Areva, though this has not been explicitly tested in case law.

Determining the Seat or Venue of Arbitration

In the absence of an express designation of a ‘seat’ in the arbitration agreement, courts interpret references to the ‘place of arbitration’ as the chosen seat of arbitration by the parties (Societe Generale De Surveillance S.A. v Pakistan 2002 SCMR 1694). This approach likely extends to references to the ‘venue’ in the arbitration agreement.

Independence of the Arbitration Agreement

The arbitration agreement, even if embedded in the main contract, is considered separable and severable from the main contract and is not affected by the frustration or repudiation of the main contract. Although the principle of separability is not expressly recognized in statutory provisions, it was upheld by the Sindh High Court in Lakhra Power v Karadeniz (2014 CLD 337), which stated that the principle whereby an arbitration clause in a contract is deemed to be a separate agreement is “well settled in Pakistan and of long standing.”

The Sindh High Court reiterated this principle in MS China Petroleum Pipeline Bureau v BST Services (2020 MLD 1933), emphasizing that an arbitration clause should be considered independently for determining the forum for dispute resolution.

However, an earlier judgment by the Supreme Court in HUBCO v WAPDA (PLD 2000 SC 841) cast some doubt on the principle of separability. The Supreme Court held that disputes relating to corruption and criminal acts that pertain to the very existence of a valid contract are not disputes under a contract and cannot be referred to arbitration according to public policy. This decision has been criticized by international arbitration practitioners and has not been expressly overruled, leaving some uncertainty regarding the status of the principle of separability in Pakistan. Despite this, recent trends indicate a pro-enforcement bias towards arbitration, suggesting that courts will likely apply the doctrine of separability more liberally.

Formal Requirements for an Enforceable Arbitration Agreement

Section 2(a) of the Arbitration Act defines an arbitration agreement as “a written agreement to submit present or future differences to arbitration whether an arbitrator is named therein or not.” Therefore, the arbitration agreement must be in writing and must refer either present or future disputes to arbitration. The New York Convention Act also requires that the arbitration agreement be in writing. This writing can take various forms, including “an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams” (Louis Dreyfus Commodities Suisse S.A. v Acro Textile Mills Ltd PLD 2018 Lahore 597).

The law does not prescribe any particular form for an arbitration agreement. It may be a clause within a contract between the parties or a separate agreement to refer any dispute arising out of the contract to arbitration. It is more common for the arbitration agreement to be included as a clause in an underlying contract between the parties. There is no formal requirement for an arbitration agreement to be signed by the parties. An agreement can be established through the exchange of emails or electronically/digitally signed documents (Louis Dreyfus Commodities v Acro Textile PLD 2018 Lahore 597). Acceptance of the arbitration agreement’s terms by the parties can be either in writing or by conduct (Syed Munir v Sardar Muhammad Kamal Khan 2019 YLR 209).

Pakistani courts have recognized that an arbitration agreement can be incorporated into one agreement by reference to another. Previously, it was held that incorporation required specific and express reference to the arbitration clause. A general reference to terms and conditions of another agreement was insufficient to import the arbitration clause (Messrs MacDonald Layton & Company Ltd v Messrs Associated Electrical Enterprises Ltd PLD 1982 Karachi 786). However, the Supreme Court in Orient Power v SNGPL (2021 SCMR 1728) ruled that an arbitration clause in one agreement could be incorporated into another if the agreements are so interconnected that it would not be commercially sensible or realistic to have disputes decided by different forums.

Binding Third Parties to an Arbitration Agreement

Pakistani courts have held that a third party or a person not party to the arbitration agreement cannot take advantage of it and would not be bound by it (Pakistan Real Estate Investment and Management Company (Pvt) Ltd v Sohail A Khan PLD 2018 Islamabad 115). There are no reported cases discussing the application of common law doctrines, such as agency or assignment, to bind third parties to arbitration agreements.

Restrictions to Arbitrability

Do these restrictions relate to specific domains (such as anti-trust, employment law, etc.)?

Pakistani courts have held that criminal matters cannot be referred to arbitration, and the Arbitration Act applies only to civil disputes (Ali Muhammad v Bashir Ahmad 1991 SCMR 1928). In HUBCO v WAPDA PLD 2000 SC 841, the Supreme Court found that agreements obtained through fraud and bribery, marred by corruption and criminal actions, could not be referred to arbitration. The Supreme Court stated that allegations of corruption, if substantiated, would render the documents void and, according to public policy, such matters requiring findings of alleged criminality are not referable to arbitration.

Allegations of fraud or other criminal acts in the execution of the arbitration agreement must be substantiated before a matter can be deemed arbitrable. In cases of domestic arbitration under the Arbitration Act, where permission is required to refer a matter to arbitration, courts will not refuse referral based on unsubstantiated allegations of fraud and dishonesty made by one party (Pakistan Real Estate Investment and Management Company (Pvt) Ltd v Sohail A Khan PLD 2018 Islamabad 115).

Additionally, courts have held that proceedings related to minority shareholder oppression under the Companies Ordinance, 1984, cannot be stayed in light of an arbitration agreement (WAPDA v Kot Addu Power Company Ltd 2002 MLD 829). In ORIX Leasing Pakistan v Colony Thal Textiles Ltd PLD 1997 Lahore 443, the Lahore High Court held that the winding-up of a company cannot be the subject of arbitration proceedings, emphasizing that such matters must be decided by the court under its special statutory jurisdiction.

Furthermore, the Lahore High Court in Nosheeba Nazeer v Sajjad Ahmed, 2021 CLC 704, held that matters related to guardianship and custody are non-arbitrable, rendering any agreement to that effect unenforceable. Although the courts have not developed a clear test of arbitrability, it is likely that certain disputes would be considered non-arbitrable in line with jurisprudence from other common law countries, such as India and the United Kingdom, which serve as persuasive authority in Pakistani courts.

Do these restrictions relate to specific persons (i.e., State entities, consumers, etc.)?

There are no restrictions on arbitrability concerning specific persons.

Will the courts stay litigation if there is a valid arbitration agreement covering the dispute?

If the place of the arbitration is inside the jurisdiction?

If the arbitration takes place within Pakistan, it will likely be governed by the Arbitration Act. According to Section 34 of the Arbitration Act, civil courts have the discretion to stay litigation if there is a valid arbitration agreement covering the dispute. To obtain a stay under this provision, the party seeking the stay must apply for it “at any time before filing a written statement [i.e., a statement of defense] or taking any other steps in the proceedings.”

In Uzin Export Import Enterprises v M Iftikhar & Company Ltd (PLD 1986 Karachi 1), the Sindh High Court held that the following conditions must be met for a stay to be granted under Section 34 of the Arbitration Act:

• The proceedings must have been initiated by a party to an arbitration agreement against another party to the agreement.
• The legal proceedings sought to be stayed must concern a matter agreed to be referred to arbitration.
• The applicant for a stay must be a party to the legal proceedings and must not have taken any step indicating an intention to relinquish the right to arbitrate after appearing in the legal proceedings.
• The applicant must satisfy the court that they are (and were at the commencement of the proceedings) ready to properly engage in arbitration proceedings.
• The court must be satisfied that there is no sufficient reason why the matter should not be referred to arbitration according to the arbitration agreement.

In Rana Muhammad Ikram v Punjab (2005 CLC 206), the Lahore High Court interpreted the phrase “or taking any other steps in the proceedings” to mean actions indicating a party’s intention to either contest the suit in court or forego arbitration.

In Government of Punjab v Muhammad Asad & Co. (2021 CLC 2135), the Lahore High Court ruled that even a mere adjournment request for filing a written statement could relinquish a party’s claim to arbitration.

In K-Electric Limited v Pakistan (PLD 2014 Sindh 504), the Karachi High Court found that when a state entity’s decision involved examining constitutional powers and limitations, the dispute was beyond the scope of arbitration.

In Eckhardt & Co v Muhammad Hanif (PLD 1993 SC 42), the inconvenience to parties in traveling and presenting evidence was considered a sufficient reason for not referring a dispute to arbitration.

If the place of arbitration is outside the jurisdiction

If the arbitration is conducted outside Pakistan, the court’s approach may vary depending on whether the governing law of the arbitration agreement is Pakistani law or a foreign law. When the governing law is not Pakistani and the arbitration is outside Pakistan, courts typically stay litigation under Section 4 of the New York Convention Act (Far Eastern Impex v Quest International 2009 CLD 153).

However, if the arbitration agreement is governed by Pakistani law but the arbitration takes place outside Pakistan, the position has been less clear. The primary issue is whether the Arbitration Act would apply to such an agreement. In the context of arbitral awards, the Lahore High Court in Taisei Corporation v A. M. Construction Company (Pvt) Ltd (PLD 2012 Lahore 455) held that the Arbitration Act remains applicable when the agreement is governed by Pakistani law.

Contrarily, the Sindh High Court, in Taisei Corporation v A. M. Construction Company (Pvt) Ltd (2018 MLD 2058), held that arbitral awards issued outside Pakistan are considered foreign and fall under the New York Convention Act. This view was further supported by the Lahore High Court in Orient Power Co (Pvt) Ltd v Sui Northern Gas Pipelines Ltd (PLD 2019 Lahore 607), which stated that a foreign arbitral award under the New York Convention Act is one made in a contracting state, irrespective of the governing law of the contract.

The Lahore High Court in A.M. Construction Company (Private) Limited v Taisei Corporation (2022 LHC 3489) clarified the issue, endorsing the principle from Orient Power Co (Pvt) Ltd v Sui Northern Gas Pipelines Ltd that the New York Convention Act applies if the arbitration agreement stipulates arbitration in a foreign country, even if governed by Pakistani law. Consequently, the High Court has exclusive jurisdiction regarding the recognition and enforcement of foreign arbitral awards, effectively overruling Taisei Corporation v A. M. Construction Company (Pvt) Ltd (PLD 2012 Lahore 455).

Thus, an arbitration agreement governed by Pakistani law with the place of arbitration outside Pakistan would be treated as a foreign arbitral agreement under the New York Convention Act.

How do courts treat injunctions by arbitrators enjoining parties to refrain from initiating, halt, or withdraw litigation proceedings?

There are no reported cases where courts have addressed injunctions issued by arbitrators to stay litigation proceedings. Additionally, there are no legislative provisions empowering arbitrators to issue such injunctions. Despite this lack of clarity, it is likely that courts would hold that arbitrators do not have the authority to issue injunctions to stay court proceedings.

On what grounds can the courts intervene in arbitrations seated outside of the jurisdiction?

Before the enactment of the New York Convention Act, Pakistani courts occasionally intervened in arbitration proceedings seated outside Pakistan. In SGS v Pakistan (2002 SCMR 1694), the Supreme Court restrained a party from participating in an ICSID arbitration, partly because the disputes had been referred to arbitration in Pakistan under the Arbitration Act. In another case, a party initiated parallel proceedings before the ICC and ICSID while litigation was pending before the Supreme Court. The Court, at the interim stage, ordered the party to request that the ICC and ICSID extend the period for the nomination of the arbitrator so that the Supreme Court could resolve the matter of the agreement’s validity (Maulana Abdul Haq Baloch v Government of Pakistan (Reko Diq case) 2012 SCMR 402). Although the Supreme Court did not make specific orders regarding the arbitral proceedings, the ICSID arbitration proceeded and resulted in an award in July 2019 (Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan (ICSID Case No. ARB/12/1)).

Following the enactment of the New York Convention Act, the courts have adopted a more restrictive approach to intervening in foreign judicial proceedings. In Pakistan National Shipping Corporation v Coniston Limited (2020 CLC 454), the Sindh High Court refused to grant an anti-suit injunction against proceedings in South Africa, despite parallel arbitration proceedings in Karachi. The Sindh High Court took a conservative approach when considering whether to grant an anti-suit injunction for foreign court proceedings.

In conclusion, with the implementation of the New York Convention Act, Pakistani courts have shifted towards a pro-arbitration policy, limiting their intervention in foreign arbitration proceedings.

The Conduct of the Proceedings

Can parties retain foreign counsel or be self-represented?

Parties have the option to retain outside counsel or represent themselves. However, similar to litigation, parties typically retain outside counsel in arbitration rather than representing themselves.

How strictly do courts control arbitrators’ independence and impartiality?

Pursuant to Section 11 of the Arbitration Act, courts can remove an arbitrator who fails to use all reasonable dispatch in proceeding with the arbitration and making the arbitral award, or in cases of arbitrator misconduct, including bias or partiality. Allegations of bias, whether actual or potential, must be supported by clear and cogent evidence, evaluated from a reasonable perspective rather than based on whimsical apprehensions (Pak UK Association v Jordan 2017 CLC 599).

The Sindh High Court, in Surriya Rehman v Siemens Pakistan (PLD 2011 Karachi 571), held that the mere fact that an officer or director of one party has been chosen as an arbitrator in the arbitration agreement is not sufficient grounds to refuse the referral of the dispute to arbitration. The court elaborated that allegations of bias should be based on the acts and omissions of the individual in their capacity, not their position, such as a director or CEO. In other instances, courts have rejected a party’s nomination of its auditor as an arbitrator without disclosure of this fact to the other party (Bata Shoe Co v Pakistan PLD 1970 Karachi 784).

The Arbitration Act does not include provisions requiring arbitrators to disclose conflicts of interest to the parties at the time of their appointment.

Do courts have the power to issue interim measures in connection with arbitrations? If so, are they willing to consider ex parte requests?

Under Section 41 of the Arbitration Act, courts have the authority to issue interim measures. Courts where the proceedings are pending can pass interim orders similar to those in a regular civil suit, such as temporary injunctions (SGS v Pakistan 2002 SCMR 1694). A party can seek interim relief from the courts before the commencement of, during, or even after the arbitration proceedings. Requesting interim or conservatory measures from the court does not constitute a waiver of the arbitration agreement (Ovex Technologies (Private) Limited v PCM PK (Private) Limited, PLD 2020 Islamabad 52).

Power to Issue Interim Orders in Foreign-Seated Arbitrations

The question of whether courts have the authority to issue interim orders for arbitrations seated outside Pakistan is still unsettled. In a recent case before the Civil Courts in Lahore, a Civil Judge ruled that courts possess the power to grant interim orders for arbitrations seated abroad, citing the general plenary powers of the court. Although this argument is plausible under the Civil Procedure Code, 1908, it has not been comprehensively tested by the superior courts of Pakistan. Consequently, the jurisdiction of Pakistani courts to issue interim orders for proceedings outside Pakistan remains to be definitively settled by higher courts.

Confidentiality of Arbitration Proceedings

Courts are willing to consider ex parte requests and issue injunctions ex parte under Section 41 of the Arbitration Act, read with Order 39 Rules 1 and 2 of the Civil Procedure Code, 1908. Additionally, courts have the full range of powers under the Civil Procedure Code, 1908, to issue any necessary procedural or administrative orders related to arbitration proceedings.

Regulation of Arbitration Conduct

Confidentiality

Pakistani law does not explicitly provide for the confidentiality of arbitration proceedings. Neither the Arbitration Act nor the New York Convention Act references the confidentiality of such proceedings.

Length of Arbitration Proceedings

Section 3 of the Arbitration Act stipulates that, unless otherwise specified in the arbitration agreement, the agreement shall be deemed to include the provisions set out in the First Schedule of the Arbitration Act. The First Schedule mandates that arbitrators must make their award “within four months after entering on reference or after being called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the court may allow.” The failure to make an award within the statutory period does not revoke the arbitrator’s authority. Under Section 28 of the Arbitration Act, courts have the discretion to extend the time for issuing the award as they see fit, whether the original time has expired or not, and whether the award has been issued or not. Courts can extend the time on their own accord, even without a formal application, considering the consent of the parties involved (MS Telecom Foundation v MS Asko Enterprises 2020 CLC 1605 Islamabad).

Does it regulate the place where hearings and/or meetings may be held, and can hearings and/or meetings be held remotely, even if a party objects?

The Arbitration Act does not specify any requirements regarding the location of hearings and/or meetings.

Does it allow for arbitrators to issue interim measures? In the affirmative, under what conditions?

The Arbitration Act does not empower arbitrators to issue interim measures.

Does it regulate the arbitrators’ right to admit/exclude evidence? For example, are there any restrictions on the presentation of testimony by a party employee?

The 1984 Qanun-e-Shahadat Order, which sets out the law of evidence in Pakistan, does not apply to arbitration proceedings (Section 1(2) of the 1984 Qanun-e-Shahadat Order). The Arbitration Act does not regulate the arbitrators’ right to admit or exclude evidence in arbitral proceedings. Pakistani courts have held that the arbitrator is the sole judge of the quality and quantity of evidence (GERRY’s International (Pvt.) Ltd. v Aeroflot Russian International Airlines 2018 SCMR 662). The First Schedule of the Arbitration Act provides that the parties shall be deemed to have agreed to:

• Submit themselves to be examined by the arbitrator(s) on oath or affirmation concerning the matters in the arbitration;
• Produce before the arbitrator(s) all books, documents, papers, accounts, writings, and documents within their power and possession; and
• Do all other things which the arbitrator(s) may require during the arbitration proceedings (within the limits of the rules of natural justice).

Pursuant to Section 43 of the Arbitration Act, courts can issue a summons to parties or witnesses whenever the arbitrators desire to examine them. A summons may be issued for the examination of a witness or the production of documents. Failure to comply with the summons can result in penalties and punishments as if the offence were committed against the courts.

Does it make it mandatory to hold a hearing?

There is no explicit provision in the Arbitration Act that mandates holding a hearing. However, the principles of natural justice, including the right to be heard, apply to arbitration, implying that a hearing would typically be conducted. If the parties agree to conduct arbitration without a hearing or waive their right to a hearing, the arbitration may proceed without a hearing.

Does it prescribe principles governing the awarding of interest?

An arbitrator can award interest on just and equitable grounds, even in the absence of a specific contract between the parties (Pakistan Steel Mills v Mustafa Sons PLD 2003 SC 301). The following principles apply to the award of interest:

• The arbitral tribunal can award interest accrued before the institution of the suit compelling arbitration or the reference to arbitration based on: (i) an agreement, express or implied, between the parties; (ii) mercantile usage; (iii) statutory provisions; or (iv) just and equitable grounds (Ghulam Abbas v Trustees of Port of Karachi PLD 1987 SC 393).
• The arbitral tribunal cannot award interest pendente lite, i.e., from the date of the institution of the suit/reference to the date of the award (WAPDA v Ice Pak International Consulting Engineers of Pakistan 2003 YLR 2494), but such power is available to the courts under Section 34 of the Code of Civil Procedure, 1908.
• The arbitral tribunal may grant interest from the date of the award until the date of the decree of the court enforcing the arbitral award, although courts have differing opinions on this issue.
• Section 29 of the Arbitration Act provides that where an award is for the payment of money, the court may, in its decree, order interest from the date of the decree at a rate the court deems reasonable, to be paid on the principal sum as adjusted by the award and confirmed in the decree.

Therefore, the arbitrator can award interest under the circumstances outlined above.

Principles Governing the Allocation of Arbitration Costs

The Arbitration Act does not provide specific guidance on the tribunal’s power to allocate costs, and there are no reported cases addressing this issue. However, since there is no restriction on the tribunal’s power to grant costs, it is generally assumed that the tribunal possesses this authority. Additionally, Section 38(3) of the Arbitration Act states that the court may issue orders regarding the costs of an arbitration if any question arises about such costs and the award does not adequately address them.

Liability

Do arbitrators benefit from immunity from civil liability?

Arbitrators enjoy immunity from criminal liability, but in rare instances, they can be held liable in a civil claim. In the case of Haq Nawaz v The State 2005 YLR 1850, an arbitrator was given two vehicles as security and later transferred them to another person. The court held that by transferring the security vehicles, the arbitrator had overstepped his authority, allowing a party to file a suit for damages against the arbitrator. Furthermore, if an arbitrator commits misconduct related to his performance or the proceedings, a party may apply to the court for the arbitrator’s removal under Section 11 of the Arbitration Act. Misconduct is defined as ‘misconduct in the judicial sense arising from some honest, though erroneous, breach and neglect of duty and responsibility on the part of the arbitrator causing miscarriage of justice’ (Federation of Pakistan through D.G. National Training Bureau v James Construction Company (Pvt) Ltd PLD 2018 Islamabad High Court 1).

Liability and Criminal Concerns in Arbitration

Are there any concerns arising from potential criminal liability for any participants in an arbitration proceeding?

The possibility of criminal liability generally does not impact arbitration proceedings. The presence of an arbitration agreement does not preclude criminal liability for the parties involved. In M. Aslam Zaheer v Shah Muhammad, despite an arbitration clause in their agreement, one party filed a criminal complaint against the other. The court held that when the same facts give rise to both civil and criminal liabilities, a party may pursue criminal charges independently. The court further stated that an arbitration agreement does not prevent the registration of a criminal case.

The Award

Can parties waive the requirement for an award to provide reasons?

Section 26-A of the Arbitration Act mandates that arbitrators “state in the award the reasons for the award in sufficient detail to enable the Court to consider any question of law arising out of the award.” Therefore, parties cannot waive this requirement. If an award lacks sufficient reasoning, Section 26-A(2) requires the court to remit the award to the arbitrators, setting a deadline for them to provide detailed reasons.

Can parties waive the right to seek the annulment of the award? If yes, under what conditions?

Parties cannot waive the right to seek the annulment (or setting aside) of an arbitral award through an agreement. Such a waiver would contravene Section 28 of the Contract Act, 1872, which states that an agreement in restraint of legal proceedings is void, except for a contract to refer disputes to arbitration.

What atypical mandatory requirements apply to the rendering of a valid award at a seat in the jurisdiction?

There are no atypical mandatory requirements for rendering a valid arbitral award in Pakistan. Section 14 of the Arbitration Act stipulates that an arbitral award must be signed and filed with the competent court. Specifically, Section 14(1) requires arbitrators to sign the award upon completion and notify the parties in writing of its making and signing. Under Section 14(2), the arbitrators must file the award or a signed copy with the court upon a party’s request or court direction, after which the court notifies the parties of the filing.

The Supreme Court, in Sardar Muhammad Kamal-ud-Din Khan v Syed Munir Syed, set aside an award because it failed to mention or discuss the written claims of the parties. Additionally, the award did not indicate that the defendant was given the opportunity to present evidence or cross-examine the plaintiff or its witnesses. The Supreme Court ruled that the award was made hastily and disregarded due process and the right to a fair trial.

Is it possible to appeal an award (as opposed to seeking its annulment)? If yes, what are the grounds for appeal?

A party cannot appeal an arbitral award. According to the Arbitration Act, recourse against arbitral awards is limited to the following options:

1. Modification or Correction of the Award: Under Section 15 of the Arbitration Act, an application can be made for the modification or correction of the award where:
   • Part of the award renders a decision on matters not referred to arbitration, is separable from other parts, and does not affect the decision on matters referred to arbitration;
   • The award is imperfect in form or contains obvious errors, which can be amended without affecting the decision; or
   • The award contains clerical mistakes or errors arising from an accidental slip or omission.
2. Remittance of the Award for Reconsideration: Under Section 16 of the Arbitration Act, an application can be made for remittance of the award to the arbitral tribunal for reconsideration where:
   • The award has not rendered a decision on a matter referred to arbitration;
   • The award has rendered a decision on a matter not referred to arbitration and such matter cannot be separated without affecting the determination of the matters referred;
   • The award is indefinite and incapable of execution; or
   • The objection to the legality of the award is apparent on the face of the award.
3. Setting Aside the Award: Under Section 30 of the Arbitration Act, an application can be made for setting aside the award on the grounds that:
   • An arbitrator has misconducted himself or the proceedings; or
   • An arbitral award has been improperly procured or is otherwise invalid.

The Supreme Court has clarified that a court, while hearing objections against an award under Section 30 of the Arbitration Act, cannot sit as a court of appeal against the award and interfere on the merits (President of Pakistan v Tasneem Hussain 2004 SCMR 590).

Lastly, as Pakistan is a party to the New York Convention, the recognition and enforcement of a foreign arbitral award made in another contracting State shall not be refused except in accordance with Article V of the New York Convention.

Recognition and Enforcement of Awards

Procedures and Time-Limits for Recognition and Enforcement of Awards

The principles and procedures for domestic awards are governed by the Arbitration Act, while those for foreign awards are governed by the New York Convention Act.

Domestic Awards:

Under Section 14 of the Arbitration Act, once an award is made, the arbitrators must sign it and notify the parties in writing. At the request of any party, the arbitrators are required to file the award or a signed copy in the Civil Court within ninety (90) days from the date of service of notice of the award. If the arbitrators fail to notify the parties, the limitation period for filing the award in the Civil Court is three (3) years as per Article 181 of the First Schedule of the Limitation Act, 1908 (Telecom Foundation v Asko Enterprises, 2020 CLC 1605, Islamabad High Court).

Pursuant to Section 17 of the Arbitration Act, the court shall issue a judgment according to the award, provided the following conditions are met:

• The court sees no reason to remit the award or any referred matters back to the arbitral tribunal for reconsideration.
• No application to set aside the arbitral award has been made within 30 days of the notice of filing the award.
• If an application to set aside the award has been made, it has been refused by the court.

Once the court pronounces a judgment recognizing the award, a decree follows, and “no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with, the award.”

Foreign Awards:

For foreign awards, a party seeking recognition and enforcement under the New York Convention Act must furnish the following documents to the High Court, in accordance with Article IV of the New York Convention:

• The duly authenticated original award or a duly certified copy.
• The original arbitration agreement or a duly certified copy.
• Translations of the above documents, if required.

The New York Convention Act does not specify a limitation period for the enforcement of foreign arbitral awards. Thus, the general limitation period of six (6) years under Pakistani law may apply to such applications. However, the courts in Pakistan have not yet provided a ruling on this specific issue.

Enforcement of Arbitration Awards

Does the introduction of annulment or appeal proceedings automatically suspend the exercise of the right to enforce an award?

The law does not provide for an automatic suspension of the right to enforce an award upon the introduction of annulment or appeal proceedings. However, the court may choose to suspend enforcement proceedings as an interim measure.

When a foreign award has been annulled at its seat, does such annulment preclude the award from being enforced in the jurisdiction?

There are no reported judgments in Pakistan addressing this issue, and it has not been covered by legislation or academic literature.

Are foreign awards readily enforceable in practice?

Yes, foreign arbitral awards are generally enforceable in Pakistan under the New York Convention Act. The courts have demonstrated a pro-enforcement bias, as endorsed by the New York Convention (Abdullah v CNAN PLD 2014 Sindh 349). Recent cases where foreign arbitral awards have been enforced include:

• FAL Oil Company Ltd v Pakistan State Oil Company Ltd PLD 2014 Sindh 427
• Louis Dreyfus Commodities Suisse S.A v Acro Textile Mills Ltd PLD 2018 Lahore 597
• Dhanya Agro Industrial (Pvt) Ltd v Quetta Textile Mills Ltd 2019 CLD 160
• Orient Power Co. (Pvt) Ltd v Sui Northern Gas Pipelines Ltd 2021 SCMR 1728
• POSCO International Corporation (Korean Republic) v Rikans International Civil Original Suit 53422/20

These judgments, along with other cases dealing with the enforcement of arbitration agreements under Article II of the New York Convention, indicate a growing tendency of Pakistani courts to recognize and enforce arbitral awards under the New York Convention.

Are there laws or regulations relating to, or restrictions on, the use of contingency or alternative fee arrangements or third-party funding in the jurisdiction? If so, what is the practical and/or legal impact of such laws, regulations, or restrictions?

Contingency fee arrangements are not permitted in Pakistan under the ‘Canons of Professional Conduct and Etiquette of Advocates’. However, fixed or flat fees and hourly billings are permissible and widely used by lawyers in Pakistan. Agreements to finance legal proceedings are not inherently illegal. In Muhammad Ramzan v Shamas-ud-din 2012 CLC 1541, the Lahore High Court stated: “Every agreement to finance litigation per se is not opposed to public policy rather there may be a case in which it would be in the furtherance of law, equity, justice and necessary to resist oppression… Such agreements are to be carefully scrutinized and when found to be unconscionable, unjust and inequitable, for improper object, against law, oppressive or leading to vexatious litigation, the same should be treated as against the public policy.” In instances where an agreement to finance litigation was found to be extortionate, the Karachi High Court declared the agreement void.

Is the validity of blockchain-based evidence recognised?

There are no reported judgments in Pakistan on the validity of blockchain-based evidence, and this issue has not been addressed in legislation or academic literature.

Where an arbitration agreement and/or award is recorded on a blockchain, is it recognised as valid?

There are no reported judgments in Pakistan on the validity of an arbitration agreement and/or award recorded on a blockchain. This issue has not yet been addressed in legislation or academic literature.

Would a court consider a blockchain arbitration agreement and/or award as originals for the purposes of recognition and enforcement?

There are no reported judgments in Pakistan on this issue, and it has not yet been addressed in legislation or academic literature. Given the increasing pro-enforcement bias of the courts in Pakistan, it is possible that they may consider a blockchain arbitration agreement and/or award as originals for recognition and enforcement purposes.

Would a court consider an award that has been electronically signed (by inserting the image of a signature) or more securely digitally signed (by using encrypted electronic keys authenticated by a third-party certificate) as an original for the purposes of recognition and enforcement?

There are no reported judgments in Pakistan specifically addressing the admissibility of an electronically signed award as an original for recognition and enforcement. However, the Electronic Transactions Ordinance 2002 (“ETO”), which governs electronic signatures in Pakistan, recognizes electronic signatures in the form of “any letters, numbers, symbols, images, characters or any combination thereof in electronic form, applied to, incorporated in, or associated with an electronic document, with the intention of authenticating or approving the same, in order to establish authenticity or integrity or both” (Section 7 read with Section 2(1)(n) of the ETO). It also acknowledges electronic signatures provided by an accredited certification service provider as capable of establishing the authenticity and integrity of an electronic document (Section 7 read with Section 2(1)(e)(ii) of the ETO). Therefore, an award signed in accordance with the ETO would likely be considered an original for recognition and enforcement purposes.

Is there likely to be any significant reform of the arbitration law in the near future?

There are currently no indications of significant reform to the arbitration law in Pakistan. However, considering the global trends and increasing use of technology in legal processes, future reforms may address issues related to blockchain-based agreements and digital signatures to provide clearer guidance and enhance the efficiency of arbitration proceeding